As a small business owner, you’re well aware of how tough today’s economy can be. Forbes reported that 8 out of 10 small businesses in the U.S. fail within their first 18 months for a variety of reasons.
No matter the cause, however, the failure of a business will almost always have roots in some kind of financial hardship. This is especially true when it comes to smaller businesses, where entrepreneurs are scraping up every last penny they can in order to see their vision for a successful business come to fruition.
While scrimping and saving isn’t always easy, it’s possible to keep a small business out of the woods by employing some of these helpful financial tips.
1. Build a Cash Reserve
While it’s impossible to say exactly when a particular business will turn a profit, a
general rule of thumb states that an entrepreneur can expect to start earning more money than he started with after at least three years. Unfortunately, expenses will still be rolling in during those three years.
Unexpected expenses are never a welcome surprise, and being caught without any funds to pay for taxes or unforeseen setbacks is especially stressful. Make it a point to add money to a cash reserve on a weekly basis to protect your business.
2. Forgo Expensive Advertising
A Super Bowl Halftime commercial spot might do wonders for big name companies who can afford such an expense, but small businesses often don’t even have the funds for local TV spots. Thankfully, that type of advertisement isn’t necessarily a must anymore.
We live in an age of mobile technology, social media, and consumers who like their information quick and to the point. That’s why internet advertising, a much cheaper alternative, is so effective. BigTime Wireless, an online retailer of wireless devices, focused their advertising endeavors on SEO-driven content for their website and YouTube video campaigns. Their videos landed them 700,000 views, which in turn increased traffic to their website.
3. Consider Outsourcing
A huge chunk of any business’ budget goes to paying employees. Their presence is paramount to running a successful business, but those costs are draining. Rather than keeping a full-time staff, consider only hiring a handful of regular employees and supplementing your workforce with outsourced contractors. Pascale Communications, a virtual PR firm, takes this approach. Contractors typically work for less money than a typical full-time staff, which is much more cost effective.
4. Opt for Online Money Transfers
It’s an expense that few business owners take into consideration, but handing out paychecks to every employee can become costly over time. As a business acquires more and more employees, that cost will only grow. Transferring money using a service such as Ria is not only cheaper, but also more convenient. Most workers are used to receiving direct deposits into their accounts, making paychecks seem like a needless expense.
5. Utilize Telecommuting When Possible
Although telecommuting isn’t always an option, it can save a business huge sums of money when it’s possible. Because Pascale is a virtual PR firm, they don’t have to worry about paying for office spaces or any of the dozens of things needed to keep a brick and mortar business running smoothly, such as electric bills. You don’t even need to go completely virtual. Picking one or two departments to telecommute will still save your business money in the long run.
6. Spend Money to Make Money
Finally, it’s always necessary to spend money in order to make money. Reward your employees with special treats to keep morale up and turnover rates low. Offer customers attractive discounts that will cement your business in their minds as one they can trust so they’ll keep coming back.
Even if your small business isn’t hemorrhaging money at the moment, it never hurts to cover all of your bases. Part of setting yourself up for success involves planning for the worst, which often comes in the form of financial distress. These tips can help you become a proactive entrepreneur rather than a reactive one, a trait that will almost certainly see you past that 18 month mark.
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