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Financial Problems I See Most Often in Small Businesses

Financial Problems I See Most Often in Small Businesses

| May 12, 2023

Navigating your finances is never easy, but it’s especially challenging for small business owners in today’s financial landscape. While you want to make sure you have a competitive edge, great service, and a superior product, you also have to be on top of the financial realities that come with running a business. 

All too often, however, I encounter small business owners who are making costly mistakes that are slowing down their personal and professional financial success. In this article, we’ll discuss four of the most common mistakes I see, and offer tips on how to avoid making them yourself.

Accounts Receivable and Cash Flow Management

Managing cash flow, and especially accounts receivables while waiting for invoice payments, is a frequent financial challenge for small businesses. When clients take an extended period to settle their invoices, businesses may experience cash flow issues, making it difficult to cover expenses and invest in growth—and adding unnecessary stress. 

To address this issue, small businesses can establish a clear invoicing policy with specific payment terms, and consistently follow up on overdue payments. Offering early-payment discounts or other incentives can also encourage clients to pay on time. Also, just like everyone should have a personal emergency fund, every business should also have some cash in the bank for these types of emergencies.

Employee Retention, Payroll, and Benefits

Attracting and retaining skilled employees is crucial for small businesses, but high payroll costs and benefits can pose a challenge. To maintain a balance between staying competitive in the job market and managing costs, businesses can offer non-monetary benefits. These may include flexible working hours, professional development opportunities, or fostering a positive work environment. 

You can also outsource certain tasks by utilizing freelancers, which can reduce the need for full-time employees and help control expenses. Additionally, implementing performance-based incentives can reward and retain top talent, increasing the likelihood of the business’s long-term success.

Taxation and Tax Strategies

Tax regulations and strategies are often a complex area for people, and can be even more so for business owners. How will you receive the best deductions? How can you minimize your taxes throughout the year and over your lifetime? Minimizing your company’s tax burdens can significantly improve your company’s financial health. 

To address this issue, small businesses should consult with a financial professional well versed in small business tax strategies to understand all the possible tax savings opportunities and implement the best ones. 

On a related note, many business owners are so overwhelmed that they have trouble maintaining accurate records of business expenses, which of course is key to claim all proper expenses, deductions, and credits. If you don’t have a system for properly tracking it all, get one in place now so you only pay what you owe (and not more) when it comes time to file your taxes.

Maximizing Sales but Not Personal Investments

Many small business owners are very skilled at generating sales, but they struggle to invest their profits effectively. As a result, their personal net worth doesn’t grow as quickly as it could.  To move toward this goal, business owners should focus on developing a diversified investment portfolio that is outside of their company. This allows for more diversification in terms of your overall assets, and gets your money working hard for you.

Yes, there is a time and place to reinvest your profits back into your business, but you don’t want to end up in a situation where you have 100% of your assets tied solely to your business. If you’re not sure how much to keep in your business versus how much to diversify into other investments, it can make a lot of sense to work with a financial advisor who can help you clarify your goals and make recommendations tailored to your business and family situation.

Ready to Tackle Your Business’s Finances Head-On?

If your business is growing with a service that people love, it’s vital to allocate the fruits of your labor properly. Making these mistakes (and more) can hurt your ability to reach your long-term personal and professional goals. If you’re making some errors and want to optimize your business finances, we at Horizon Planning Group would love to help. You can schedule an introductory meeting online or reach out to me at (770) 627-4157 or to get started. 

About Garrett

Garrett L. Holcombe is president at Horizon Planning Group, a full-service fiduciary financial planning firm committed to always doing what’s right for their clients. With over a decade of experience, Garrett specializes in serving small business owners, giving them a step-by-step process to help them overcome the challenges they face every day and take advantage of the opportunities available to them. His vast knowledge and dedication to his clients allows him to tailor a plan to his clients’ needs and goals, whether that’s creating a start-up plan, financing and tax strategies, employee benefits, and more—all so that his business owner clients can experience confidence in their financial future. Garrett is known for his passion for education. He takes on the role of a teacher so he can help his clients feel empowered about their decisions and understand their financial situation thoroughly. He wants his clients to know that he’s always there for them, no matter what their questions or concerns are, and is always working behind the scenes to keep your plan moving forward. 

Garrett graduated from Kennesaw State University with a bachelor’s degree in political science and is a CERTIFIED FINANCIAL PLANNER™ professional. When he’s not serving his clients, Garrett loves spending time with his wife, Amber, and their two children, Samantha and Matthew. Garrett and Amber were one of the first foster homes with Goshen Homes, a foster care agency of Goshen Valley that specializes in keeping siblings together. They adopted their children through the foster care program. Garrett is heavily involved in his community, serving as an adult leader and the safety and training officer for Sea Scout Ship Southwinds 100, and is president of the Cherokee High School Band of Warriors Booster Club. He is part of the Woodstock Business Cub and an active member of his church. In his downtime, he loves cheering for the Braves and Georgia Bulldogs and is an avid Liverpool Football Club and Atlanta United fan. To learn more about Garrett, connect with him on LinkedIn.

This is for educational and informational purposes only and is not research or a recommendation regarding any security or investment strategy. 

The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP’s express prior written consent.

Securities offered through IFP Securities, LLC, dba Independent Financial Partners (IFP), member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Advisor. IFP and Horizon Planning Group, Inc. are not affiliated. 

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.