Anyone attempting to start a small business knows it can be difficult. From finding the right market to securing start-up capital, there’s no shortage of challenges that come with the process.
However, one of the biggest obstacles between entrepreneurs and thriving small businesses is financial drains. Understanding these financial drains and how to avoid them can put any small business operator in a better position to avoid some severe pitfalls and find success.
Here are the major financial drains for small enterprises.
For many small enterprises, inefficient operations can be the nail in the coffin. Oftentimes, this type of problem on a large scale comes from either a lack of awareness or a laid-back, inaccurate attitude about business.
Some ways inefficient operations can manifest in small businesses include managing inventory poorly, working with bad suppliers, and producing ineffective marketing campaigns. While being inefficient in a few minor tasks may seem inconsequential, when it is a global problem for small businesses, it can be incredibly expensive.
To ensure that one’s small business isn’t falling victim to inefficient operations, it’s important to always be on the lookout for these types of inefficiencies. If business owners or operators don’t feel comfortable engaging in this type of entrepreneurial detective work, it can be wise to hire a consultant to help find and fix these types of problems.
Beyond hiring expert help, taking advantage of key technology can also help one save money and be more efficient in operating a small enterprise. These technologies can include business intelligence and data analytics software, which can help one consistently make operations more efficient and profitable.
Rent can be an incredibly large financial drain for small enterprises trying to get off the ground. This is especially true for businesses in larger cities where rents can be exorbitant. While it may seem necessary, paying rent costs above one’s means can spell disaster for one’s small business.
In addition to costs being high, many landlords are wont to raise rent prices at the end of lease agreements, making this a cost that consistently rises and becomes more of a drain. However, though it may seem difficult, there are ways to lessen the burden of rent prices and ensure that one’s business isn’t being held back by these costs.
For many small business owners, exploring online options is becoming increasingly popular. This is because online businesses that are remote don’t necessarily require a storefront or office, decreasing the financial drain significantly.
Another tactic for many entrepreneurs is looking for areas with less inflated rent prices. If one finds that an area with cheaper rent has a market that one can serve, it can be far more cost-effective to start a small enterprise in this type of location.
Misjudging Operating Costs
In any line of business, a key part of starting an enterprise is being aware of the costs of both starting and maintaining a business. Without a clear understanding of these costs, business operators can easily mismanage funds and find themselves strapped for capital.
While many entrepreneurs focus on start-up costs, many are less thorough in their research of ongoing costs. As a result, many find themselves repeatedly spending more money than they plan to every single month. Furthermore, many first-time entrepreneurs aren’t clear on how to categorize expenses and assets in their business, further complicating matters.
To avoid this severe financial drain, it’s essential to do research on similar businesses. By gaining an understanding of the ongoing costs of other comparable businesses, one will be able to plan accordingly.
In addition to research, it can help to enlist the help of a professional with the knowledge and expertise to operate a specific type of business. By doing so, one can avoid a large number of pitfalls that might otherwise go unnoticed until it’s too late.
Though it’s common for many entrepreneurs to be overly optimistic about their business prospects and business acumen, sometimes, the market may have other ideas. Specifically, economic factors can have a tremendously negative impact on one’s small enterprise and there’s not always a lot one can do to change this.
In times when the economy is on a downswing, it’s more than likely that the majority of small enterprises will be hit hard. This lack of consumers caused by the economy can quickly turn into a burdensome financial drain that is difficult to remedy or climb out of.
While it’s likely not in any entrepreneur’s power to change the economy, one can prepare for these types of situations. This includes processes such as having a plan in place in the case of a downturn in the economy which can help cut expenses until the economy bounces back.
Ultimately, it’s not always easy for entrepreneurs to avoid the negative impact of unforeseen factors in the economy. However, planning for these unforeseen events can help lessen the blow and increase the chances of one’s small enterprise surviving.
Taxes, Bank Fees, and Wages
When calculating operating costs, first-time entrepreneurs typically focus on factors such as rent and the costs of materials. Unfortunately, these are far from the only costs associated with running a small enterprise.
Taxes, bank fees, and employee wages can quickly add up and start acting as a major financial drain on one’s business. If one isn’t expecting to have to pay these and hasn’t factored them into one’s expenses, that could cause enough for one’s small business to close for good.
Fortunately, entrepreneurs don’t have to be blindsided by these costs. Instead, there are ways to plan for and mitigate these costs in significant ways. As it pertains to taxes, consulting an accountant can help one avoid any government or tax penalties while also planning for required taxes. Similarly, accountants can help one find a bank that is suitable for small businesses with lower fees and costs.
In terms of employees, there are several ways one can minimize the financial drain of wages. One key way is to streamline operations so that fewer employees are necessary. Another way to minimize employee costs is to hire part-time or contract employees rather than full-time workers. Ultimately, one’s specific business will dictate which type of solution is best for mitigating the financial drain of employee wages.
Small Enterprises Can Be Costly
While it’s always commendable for entrepreneurs to take the leap and start their own small enterprise, doing so isn’t always cheap. From inefficient operations to downturns in the economy, there are many expenses that can act as a significant, and sometimes disastrous, burden.
Fortunately, planning thoroughly and enlisting the help of specialized experts can help one overcome these challenges and succeed as a small enterprise operator.