V4B Business Finance

Top finance tips for small businesses

small business finance

Small businesses are experts in the goods they produce or services they provide. Often, though, they need a little help when it comes to financing.

Managing finances properly is key to business survival and growth. But it can be challenging, especially in times of high inflation and slow economic growth.

In this post, we look at how small businesses can establish sound financial practices to put them on the road to success.

Here are our top finance tips for small businesses.

#1: Invest in technology

Investing in technology facilitates growth and provides affordable solutions to common problems small businesses face.

In a 2017 survey on digital business, 56 percent of CEOs said implementing technological improvements had increased revenue.

Adapting to the world of technology gives small businesses the tools they need to challenge bigger competitors with higher profiles and more funding.

Benefits that technology can bring small businesses include:

Reaching more customers

Technology has transformed the marketing landscape.

Small businesses that used to rely largely on newspaper ads can now grow through more influential channels that engage with a more targeted audience.

And digital marketing typically costs far less than traditional advertising, while yielding bigger results.

Powerful digital marketing strategies for small businesses include:

  • Social media marketing on platforms such as Twitter, Facebook, Instagram, LinkedIn, and YouTube.
  • Pay-per-click (PPC) advertising on platforms like Google Ads (formerly Google AdWords).
  • Content marketing including search engine optimisation (SEO) to generate leads.
  • Email marketing.

Improving Efficiency

Small businesses are often run on a lower budget in a busy environment where efficiency is everything.

Digital productivity and collaboration tools help to ease these pressures by streamlining key business processes. This can more than double operational efficiency.

Productivity software is basically any computer program that helps people do their jobs more efficiently.

Office suites that many businesses use daily include:

  • Microsoft Office.
  • LibreOffice.
  • Google Workspace.
  • Zoho Office Suite.
  • Apple iWork.

Team collaboration software is playing an increasingly important role in small businesses by improving communication, project management, and customer relationship management (CRM).

Digital collaboration tools for businesses include:

  • Asana and Trello project management software.
  • Zoom and GoToMeeting online video conferencing software.
  • Google Docs for simultaneous file editing and sharing.
  • Skype for voice calls and videoconferencing.
  • Dropbox file storage and syncing.

#2: Invest in Growth

Exploring growth opportunities helps business maintain stability and move ahead in competitive markets.

Businesses that show they’re willing to invest in their future tend to attract top talent and increasing numbers of loyal, appreciative customers.

Growing a small business isn’t easy, particularly for startups. Deceleration in business growth is common in many types of enterprises. But it can be used as an opportunity.

Benefits of a cash injection for growth

Businesses often need a cash injection for long-term growth in order to take advantage of future openings.

And many turn to business financing specialists, who can fund a diverse range of investments that benefit businesses by enabling them to:

  • Develop their brand.
  • Recruit more staff.
  • Improve staff training and development.
  • Buy new equipment.
  • Relocate to better premises.

Common types of business loans

Many loans are structured to help small businesses keep operations running smoothly and cover regular outgoings while developing capability for growth.

Common types of business loans include:

  • Equipment and technology finance.
  • Vehicle finance.
  • Property refurbishment financing.
  • Partner buy-in and buy-out funding.
  • Acquisition funding to buy another business.

Small businesses can also benefit from financing to spread the cost of tax and VAT bills, and cover expenses as they wait for customers to pay bills (more on this next).

#3: Improve cash flow by managing late customer payments

Many small businesses face the problem of customers who’re consistently late in settling their invoices.

Having too much cash tied up in unpaid bills can result in cash flow problems – a leading cause of business failure.

Sometimes a simple reminder is all that’s needed to get a customer to pay an overdue bill. In other cases, you may need to adopt a different tactic.

Instead of repeated invoicing and phone calls, it may be worth considering changing your billing strategy to encourage customers to pay up in a timely manner.

You could, for example, offer a discount if bills are paid within 10 days. If that doesn’t happen, the customer then has to pay in full within 30 days.

Debtor funding

Another way to mitigate the effects of unpaid bills is to get debtor funding, working capital finance, or work-in-progress (WIP) funding.

These types of business loans generate revenue against unpaid invoices, providing cash to unlock capital and improve cash flow.

Many invoicing-based small business benefit from debtor funding to turn unpaid invoices into ready cash. These businesses include:

  • Law firms.
  • Architects.
  • Accountants.
  • Agencies.
  • Businesses with seasonal demand.

#4: Use the Recovery Loan Scheme

Small businesses can still get lower-cost funding through the government’s Recovery Loan Scheme (RLS).

The initiative was set up in 2021 to support SMEs hit by the effects of the Covid pandemic. It’s now been extended to June 2024 to help businesses manage rising costs, high inflation, and the downturn in global economic growth.

The Recovery Loan Scheme improves lending terms on offer to businesses by guaranteeing the lender a percentage of the loan.

Funding is available through the scheme for any legitimate business purpose, including investment and cash flow management.

Why financial stability is crucial for small businesses and their owners

When small-business owners take control of their business’s finances through strategies such as external funding, it’s not only good for the business but can also improve their quality of life.

Without financial stability, businesses can quickly find themselves in a critical downward spiral.

The resulting pressure and stress can lead to business owner burnout. This can put the business in greater jeopardy, with productivity, communication and prioritisation problems.

These issues can be avoided with the help of measures to ensure adequate working capital and cash flow. And this is turn results in a better work/life balance for the business owner.

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