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How to deal with Financial Challenges faced by Small Business

by Sonal Shukla

Small businesses have recently grown in popularity, especially during the Covid-19 period. Small businesses are often regarded as easy businesses, and one sees simplicity in managing them. However, the truth is far away as it could be seen. The size of the Small Business is indeed on a low level, and hence it is easier to manage. But it requires a great deal of effort as the people involved are less in numbers. These small businesses are generally service-based or retail-based operations and differ in size, nature and regulation. One might be shocked to know that many small businesses come under heavy regulations, and some of these businesses include retirement homes and liquor-serving restaurants or shops, as these require constant inspection.

Although regulations are one of the many difficulties that they face. Some of the other difficulties include:

Financial
Manpower
Managing costs
Easy Bankruptcy
Social responsibility
Managing Quality
Avoiding frauds
Growth
Marketing and Publicity

Of the difficulties mentioned above, the most challenging one for a small business is Financial Difficulties. It is quite easy to understand and learn about the different types of difficulties faced but a lot harder to find the solution for it. Here in this article, we have listed some of the most common financial difficulties and some of the ways to overcome them.

Source of Finance:

The business should review whether it can secure its business by equity or can manage by taking a loan or also known as debt financing. It is always advisable to have an optimum mix of debt and equity to manage the finances properly.

It is important to make a proper financial plan by experts, which might involve some cost. Poor financial decisions can affect the going concern of a small business, so an expert should provide advice and plan it. Finding banks that can provide low financing loans can help the business minimise costs. Suppose the finances cannot be managed by debt. In that case, it may be possible that the business owner is relying on loans alone, and it may become necessary to manage the financing costs properly.

Loan Financing

A Business loan is difficult to secure from traditional banks as the risk involved is high. If the business is in a situation where it has to rely on debt heavily, then it becomes necessary to find sources which have a low-interest cost.

Small Business Loans are imperative for a business as they have to manage the entire operations daily. Various lenders can provide these loans at a low finance cost. Some of them include Lendingkart, Kabbage, Lendio, Fundera and Kiva. Small businesses can also resort to alternative financing, eliminating the chain’s traditional banks. Online loan providers, same-day financing options and crowdfunding are some options to avail of alternative financing.  

Managing Costs

If any business masters the idea of having its costs at a minimum, it becomes its differentiating factor. With various experts, finding wastage of resources and ways to minimise cost becomes easy.

Small businesses should hire experts or talented officials to set up budgeting and forecasting. The costs of such manpower would result in savings soon. Budgeting is important as it helps businesses understand their future costs and if there are certain avoidable costs.

Marketing Expenses

For any business to sustain itself, the customers need to acknowledge it. It is easier for the big players to incur these expenses as they do not have a shortage of funds, but it becomes difficult for small businesses.

Businesses should find such platforms wherein the cost involved is comparatively lower. Social media platforms are one such stop wherein the cost involved is minimal. The business can have a social media presence and look for endorsement.

Compliance Issues

Some small businesses are required to follow a lot of government orders and inspections. They involve a lot of costs, and due to the scale of their operations, this cost becomes a little difficult to absorb. Since this cost is unavoidable, these businesses have to incur it mandatorily.

Companies should make it an effort to recognise if they are asked to pay penalties that they can easily avoid. It should also make efforts to pay the dues on time to avoid interests and penalties. This can be done through strict management and providing incentives to manpower to lower their compliance costs.

Financial difficulties are one of the most crucial elements for small businesses to tackle. It is easy to find the cause of difficulties but requires great research and planning to tackle the problems. With experts on the team and constant review, it would be easier for small businesses to tackle financial difficulties.

FAQs

1. Why is financial difficulty a serious concern for Small Businesses?

Small businesses cannot survive without proper financial planning. They may be forced to shut down if the cost burden falls hard on them, and thus it is a serious concern for them.

2. What are some major financial difficulties faced by small businesses?

Some of the major financial difficulties faced by small businesses are

Securing a small business loan
Inadequate financial planning
Source of income
Compliance costs
Marketing expenses

3. How has Covid 19 impacted the financial health of small businesses?

Covid 19 has forced many businesses to shut down because the sales have dipped in great numbers, whereas the cost has remained the same.

4. How can small businesses deal with the marketing costs?

Small businesses can finance their daily expenses, which include marketing costs, through the easy small business loan options available. They can also create a social media presence and look for cheap endorsements to make their product/ service known.

5. Should small businesses rely entirely on equity or debt financing?

Businesses should always find an optimum mix of debt and equity financing. The optimum debt-equity ratio is 2:1 for companies and may be adjusted for other businesses depending upon their size and nature.

6. What are some of the alternative financing options for small businesses?

Some of the Alternative financing options include crowdfunding, cryptocurrencies, same-day financing provided by certain small lenders and online loan providers.

7. How can small businesses make use of budgets in their financial planning?

Budgets can help small businesses estimate their costs and reduce any possible avoidable costs.

8. Is loan financing a good option for securing finances in small businesses?

Small Business Loans are a great option for the business to manage their daily expenses. The interest cost for such loans is generally lower due to various schemes as announced by the Government.

9. What are some of the best loan securing sources?

Some of the best Small Business loan securing sources include Traditional Banks, Venture Capitalists, Crowdfunding, Angel Investors, Factoring and Microfinancing.

10. Why is it difficult for small businesses to secure financing?

The risk involved is quite high in small businesses compared to big businesses; hence, investors do not wish to invest wherein the returns are not as high as in other companies.

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