How will your financial planning process look different this year? The last two years have been exceptionally difficult for small business owners, and yet here you are forging ahead. If your 2022 goal is to increase profits and grow your business, we have valuable tips to help you get there.
Adapting in order to grow your business in a post-pandemic world is essential to moving forward. The following post will introduce you to tips, tools, and resources that can save money and help you reach your financial goals.
1. Plan Ahead for Losses in Revenue
According to research, more than 80% of small businesses fail because of issues related to cash flow. You may have heard the phrase, “it takes money to make money.” In reality, it takes a lot of money to run a successful business. Even if your business is profitable now, there are many unplanned events that could hinder your revenue flow, leaving your business vulnerable. How do you prepare for such events?
The first is to have a back-up plan. We recommend having an open line of credit, which works like a credit card in that interest only accrues on the credit that is used. If you don’t use the credit, there is nothing to lose. However, if you find yourself running low on cash, you could use the line of credit until business picks back up. The last thing you want is to lose your business over circumstances that could otherwise be temporary.
2. Know the Ins and Outs of What Drives Your Business
While you may have a firm understanding of why your business exists and what your overall vision is, it is equally if not more important to understand your key business drivers. This means knowing which elements of your business have the biggest impact on its performance.
Your key drivers tell you how to best allocate your resources including time and money. Not knowing what these drivers are can cost you opportunities for increasing revenue.
3. Minimize Your Operating Costs
What many small businesses gained from the pandemic was learning how to cut costs without cutting productivity. Whether you chose to remain working from home to save on office space and office equipment, or found creative ways to use resources more efficiently, we encourage you to continue that trend.
As business picks up, you can build up cash reserves to then invest back into your business.
Take advantage of the minimalism you were forced to adopt in 2020, and use it to grow your business in 2022.
4. Refinance Your High-Interest Loans
If you’re like many small business owners who took out business loans over the last two years, you could be paying too much in interest. High-interest loans not only take longer to repay, they prevent you from using that extra money to invest back into your business. If you have outstanding loans, it would benefit the future of your business to seek lower interest rates.
Contact your lender for advice about refinancing your loans, or look for other lenders that can give you a more competitive rate. Doing so will minimize your risk and allow for more flexibility when it comes to making financial decisions that are in the best interest of your business.
5. Play Out Various Scenarios
Prior to 2020, most small business owners did not likely plan for a global pandemic. Now that we’ve experienced one, it’s time to plan for what comes next. Visualize the following scenarios, and create a strategy for each one. Many of the strategies may look the same. What is most important is that you plan ahead. Having these strategies, and evaluating your P&L statement monthly, will help you minimize any negative impact that might result should one of these scenarios play out.
How would the following scenarios impact your business?
- The world returns to what it was pre-pandemic.
- A more deadly variant of COVID-19 spreads, and businesses are shut down again.
- Consumers become too afraid to spend.
- The U.S. stock market crashes.
6. Focus Spending on the New Normal
When people could no longer shop indoors, they went online. Customers today expect their online experience to be seamless. Therefore, it is important for small businesses to invest in their websites and the customer experience. Your budget for 2022 should include optimizing your website, providing customers with various options for receiving goods and services, and making customer service accessible over the phone and through email.
If your employees will continue working remotely, investing in digital workspaces for them will give them the tools they need to work effectively and efficiently. Investing in your employees will also show that you value them, which is not only appealing to your employees, but to consumers as well.
7. Find a Financial Partner Who Could Help
When you experience financial hardship in your business, the biggest mistake you can make is confronting it alone. There are professionals who have experience helping small businesses navigate difficult circumstances. By reaching out to them, you are likely to save money, time, and energy that could otherwise be invested back into your company.
If you are a business owner who is looking for a financial partner who will guide you towards a more profitable year, give us a call. We’d love to discuss the best option for you.