Top Ten Financial Challenges for Small Businesses and How to Manage Them

Keeping a small business running is not for the faint of heart. While 80% of businesses with less than 500 employees make it through the first year, as acknowledged by the United States Chamber of Commerce, 70% will remain in operation after the second year. By the time they reach the five-year mark, just half of the small businesses will remain in operation. Fortunately, these sobering statistics do not keep businesses from reaching for their dreams.

Some small business owners keep their doors due to a lack of funds. So put, not enough money was coming in for them to pay employees or cover other expenses. This article will look at the Top ten financial challenges that small businesses typically face and show how to manage them and defeat the possibilities.

Top Ten Financial Challenges for Small Businesses

These are the top financial challenges that small businesses are dealing with and a few tips. The main goal is to keep your business being bankrupt, unprofitable, and unproductive.

What are the significant challenges for small businesses?

What are the significant challenges for small businesses?

  1. Limited or unbalanced Cash Flow
  2. Not working with a Budget
  3. No Planning for Unexpected Expenditure
  4. Not Producing Sufficient Capital
  5. Having a lot of Debt
  6. Ignoring Essential Reporting
  7. Inadequate Tax Compliance
  8. 8. Not Paying Bills on Time
  9. Merging Business and Personal Finances
  10. Bad Marketing Approaches

Limited or unbalanced Cash Flow

Most businesses make a great effort to managing their cash flow. However, with easy and efficient invoicing, you can cover the monthly bills to accumulate cash to invest in growth and keeping funds for an ongoing issue.

Tips for Managing Receivables and Payables


Giving a discount for payment in return for faster payments

Connect with consumers to help avoid late payments, disputes, or defaults

Send appropriate wordings, thorough invoices, and proactive reminders

Ensure there are no obstacles to payment, such as invoice mistakes or delayed billing

Arrange customers with large balances in the cash collections procedure

Make sure your payment system is practical and suitable. Online with multiple payment options that work best

Outline weekly cash collection targets


Check contracts to ensure that your business is not paying suppliers immediately

Arrange your business-vital suppliers to establish the priority of payment

Check for discounting opportunities with suppliers

Communicate to recognize which suppliers could be at risk and which suppliers can delay terms

Ensure systems and processes are capable of avoiding delays and mistakes

Make sure that payment is made through the agreed payment processed

When likely, determine payment terms from invoice receipt date rather than from invoice date

Cash flow 101 includes balancing accounts payable and accounts receivable. By expanding the cash-to-cash conversion cycle, businesses can ensure access to capital.

Beyond those basics, a business should acquire cash flow forecasts established on historical performance and current situations. It always factored in eventualities, such as industry changes, economic downturns, and customer shifts, and used "what if?" scenarios to develop an accurate financial plan. Scenario planning is always on top of many businesses' to-do lists to prevent the unprepared position many found themselves in when the COVID pandemics and Lockdowns struck.

For businesses that postpone credit terms to customers, it was the best way to improve cash flow: establishing clear payment terms, invoicing effectively, offering discounts for early payment, and making it easy for customers to pay you.

Merging these strategies will increase liquidity.

Not working with a Budget

If you are running your business by the seat of your pants, just anticipating that there will be a sufficient amount in the bank to pay the bills at the end of the month, it will not take long to wind up with more Debt and financial obligations than you can control.

The best is advice: Make and keep to a budget. In doing so, his will support your plan for the future. This will also give you a tool for analysing expenditures and the ability to change direction quickly when needed.

Consistently updating the budget to reflect current situations and use it to make sound business decisions. A budget should always be a living document, not something you write then toss in a virtual (or literal) drawer.

Flexible budgeting has a strong trend among small business owners.

Static vs. Flexible Budgeting


It continues the same even if there are essential changes from the views made during planning.


Adjustments made on changes, with the view used in the planning process.

At least, every small business budget should contain these five elements:

 Fixed amounts

 Variable amounts

 One-time amounts

 A cash flow report

 Profits (what is left after all of the above are taken into account)

We also suggest building in some savings for unforeseen events.

No Planning for Unexpected Expenditure

Unexpected expenses can disrupt any small business' best-laid plans. Having a dedicated arrangement to build up a rainy-day fund will give your business a cash reserve that can get you through rough times or support your growth when the time is right.

Here is how it works: When times are favourable, put what you can into the account and let it build over time. You can also arrange automated transmission from your business checking account to your savings account. You are not required to do this yourself; the money will be easily accessible if you need to withdraw some back.

The most significant benefit to a rainy-day fund is that it can help you reduce Debt, thus reducing interest expenses, which points us to our following challenge.

Not Producing Sufficient Capital

One in five business owners. That applied for funding during the prior five years was refused, agreeing to Nav's Small Business American Dream Gap statement, that 82% of all the business owners reviewed did not know how to understand their business' credit scores. However, the study also shows that individuals who better understand their business credit scores are 41% more likely to be given a loan.

As we examined in our piece on deciding valuations, there are five principal paths to building capital:

  • Venture funding for young businesses with solid growth prospects.
  • Private equity for those ready to give up a portion of the business in exchanging for cash now.
  • SBL-backed loans. These are somewhat simpler to get today than a year ago, but loan amounts are usually small.
  • Bank loans without government backing. As always, strongly reliant on good security and stable, growing revenue. Also, in a small business, likely supported on your credit. Your house may be part of the security.
  • Friends and family and personal savings. the most accepted options, built on the information given from the Bureau of Labour Statistics

A lack of working capital is a problem for businesses of any size, but it can be particularly damaging for smaller entities with small amounts of capital. Though having cash on hand every month to pay the bills with some leftover is helpful, having a shortage of capital can hinder a small business from hiring, growing into additional markets, and discovering new opportunities.

How to increase your possibilities of getting a loan, attracting an investor, or otherwise obtaining capital?

 Have a business plan in place will potentially a pitch deck.

 Work to increase your credit score.

 Having the confidence that your cash flow, Profit and Loss reports, and balance sheet are updated regularly, available, and can be audited.

Having an automated financial management platform, you can effortlessly produce these reports and have them ready to give when that investor or banker asks for them.

Having a lot of Debt

Small Business Owners are rightfully pleased with "bootstrapping" their way to achievement, so it is not uncommon for business owners to take on Debt to start their businesses. But there should not be an issue as too much business debt. It could be they ran up a little too much money on a personal credit card, or maybe their local banker prolonged a line of credit that is now used up and charging a high interest rate.

Whichever debt vehicle was tapped into, these circumstances can have considerable short- and long-term impacts on the business. As an example, it can take a while for a business' positive cash flow to begin, and in the meantime, there are staff, suppliers, and overhead payments to be made.

These are four steps you can gain from to reduce your business debt levels and get your finances back on track:

  • Find areas where you can decrease costs. As an example, perhaps you can sublease vacant office space or sell surplus equipment. While downsizing your workforce is not a wise option, it may be essential in keeping your business vibrant.
  • Using runway extenders: Staying together with your customers and seeking ways to build your publicity and improve your business model and revenue. For example, presentation to your best customers markdowns if they can pay you immediately. You should also need to contact your suppliers to manage discounts and delayed payments.
  • Consider creative financing decisions. Approach investors, crowdfunding are ways to raise cash without considerable payments.
  • Communicate with every creditor and advise them of your difficulties. Disregarding your lenders will only aggravate matters while tackling a debt problem is easier when you act promptly. Since it is in everyone's interest to find a resolution, request that your lenders work with you to reduce interest rates, increase your credit line, or rearrange your repayment options.
  • Combine all your business loans into one payment, which may decrease monthly costs without negatively changing your credit score. In addition, having a business debt into one consolidated loan, like the one from the SBL, can allow you to deal with a specific creditor rather than several and perhaps even get a lower interest rate.
  • Ignoring Essential Reporting
  • Inadequate Tax Compliance
  • Not Paying Bills on Time
  • Merging Business and Personal Finances
  • Bad Marketing Approaches
Ignoring Essential Reporting

Small businesses must have documentation of all financial transactions, often with the support of a bookkeeper. Those items comprise sales, expenses, and earnings. While private enterprises are not required to report financial data, having poor record-keeping can lead to complex problems. Such as, not correctly stating revenue on tax forms and incorrect deductions can lead to fines, interest charges, or even imprisonment.

Not reporting financial data or logging inaccurate reports can lead to financial losses and time spent trying to fix problems for public companies.

Truthfully reporting is vital when filing tax forms is mandatory, and taxing authorities and other government bodies, depending on your business. In addition, reports are required to be filed on time, especially GST, PAYEE, and yearend Returns; the business could face fines and other penalties.

Not recording transactions accurately can snowball, harming monthly cash flow and affecting other financial reports. This is also something that will trigger significant concerns with auditors.

Some business owners prepare reports based on data collected from spreadsheets and receipts, whereas others have automated systems to track this aspect of their companies. However, having a dedicated Enterprise Resourcing Planning (ERP) system, companies get more than automated, accurate financial reporting. A pre-vailing financial reporting solution provides real-time financial analysis and modeling for detailed insights into corporate performance and improved decision-making across every business dimension.

Inadequate Tax Compliance

Cash management is complex enough; there is no point in complicating things by overpaying the IRD. However, approximately 85% of small businesses overpay on their income taxes every year. Others underpay and are on the wrong side of the IRD or other authorities. Both these situations take time, effort, and money to work through.

One of the most significant problems that businesses face regarding taxes is not the payment. Instead, it is the cost of compliance. And this burden sticks small businesses are proportionately harder hit than their larger counterparts. According to the IRD, businesses with under $1 million in revenue bear approximately two-thirds of business compliance costs.

Not Paying Bills on Time

Suppliers, landlords, and providers of utilities want to get paid on time. And while the irregular delayed payment maybe ignored, consistently remitting payments late can cost a small business tremendously. In addition, damaging supplier relationships, being cut off from required services, and continually running behind the Debt can profoundly affect a company's financial health.

Approximately 55% of companies still handle their accounts payable (AP) processes manually, says Pay Stream Advisors. This is time-consuming and prone to deceit and errors. An automated system saves substantial money and time; it also reduces data-entry mistakes and helps avoid fraud through a system of "touchless" which is controlled behind the scenes. These functionalities transform into significant benefits for businesses that have accounts payable automation software.

Accounts payable automation software helps minimize the number of manual tasks that finance employees must perform. For example, organizations can use an automated system to submit invoices, get the invoice approval process, and send payments to suppliers instead of manually handling suppliers' invoices and repeated expenses.

Merging Business and Personal Finances

Maintaining personal and business funds independently is one of those "Business 101" lessons that some small businesses owners want to ignore. Beyond one-quarter of small businesses do not have independent business bank accounts. According to a Clutch survey, 23% of firms cite mixing business and personal finances as challenges facing their businesses.

These business owners' anxieties are legit: Mixing business and personal funds is a serious practice that makes it challenging to monitor cash flow and could eventually damage the value of a business. Moreover, auditors will see this as a big red flag, whether from the legal compliance authorities or an internal audit.

To avoid this problem is to open a business account and use it to manage all business-related inflows and outflows, plus your salary, which should be a set amount, versus just taking a chunk at the end of every month. Your bank may also advance a business credit card that you can use to handle your cash flow while operating your business versus using your card. With this technique, all business-associated items will be effortlessly accessible and smartly organized when you need to substantiate deductions or other transactions.

Finally, growth, including your bank account, requires soliciting your value proposition, a perpetual challenge for small-business owners.

Bad Marketing Approaches

If you are not frequently signing up new customers, you are giving them away to rival competitors. Though some "boutique" or small businesses can obtain by assisting the same handful of clients year after year, businesses with growth and profitability objective need new clients to help them achieve those goals.

Small Business owners must use marketing strategies that attract, engage, and retain customers to get these clients. This is one area where a business that does get it right can shine.

While some businesses outsource marketing to third parties, others get creative and undertake it in-house. As a result, you can get plenty of awareness on a modest budget by using guerrilla strategies. And, how-to resources exist, such as the marketing news and subjects' section such as Entrepreneur, where you can find related articles, blogs, and videos to help you spread the word about your business and drive new sales. Similarly, finance leads can help with social marketing efforts in some surprising ways.

Financial challenges are legitimate for all businesses. Still, they can be especially challenging for small-business owners attempting to get out of their business without going into the direction of Debt by following the guidance outlined in this article. You will avoid some or all of these issues while positioning your business for success in any market.

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You can create any structure you want by using the same tools as in the regular workflow. Add buttons and forms or anything else you'd want.

Being experienced with an accounting background, we can offer a wide range of reliable and accurate bookkeeping services. A common question often asked is, "What exactly does a bookkeeper do? "The answer to this question is shown below for our services as specialist bookkeepers. We can,of course, modify our services to suit the needs of your business whether you need a few of these services or all.

·      Accounts Receivable*-Invoice preparation and follow-up with the client

·      Accounts Payable* - Suppliers' invoices are processed and paid when due.

·    Bank Reconciliations -Reconciling Bank and Credit Card accounts with daily bank feeds

·     GST Filing                        - Timely filing of Bi-Monthly or Six-Monthly returns

·     System Training               - Training is required whenever you choose new software. We provide free training.

·    Accounting Software conversions – With our expertise, we can switch your accounting information to XERO/MYOB

·        Payroll

·        Unlimited Email Support

*Note:- Accounts Receivable and Accounts Payable are closely monitored to ensure that your business has no issues with cashflow

Payroll Management

Business Pillars offers all-inclusive payroll services that help your business run efficiently. We are committed to being legally compliant. Our services are built to simplify payroll processes for small to medium-sized businesses throughout New Zealand.

PAYROLL processing made easy

We provide the most updated payroll solutions tailored-made that is affordable to your requirement. We are committed to taking care of all the work demanded, allowing you to focus your time and energy on more essential things you love to do.

Our payroll services are:

·        Employees pay, On-time payments including benefits, reimbursements, deductions, Weekly/Fortnightly/Monthly

·        Employee PAYE

·        Payday Filing   – Timely filing returns to IRD

·        Leave entitlements– Accruals for each type of leave

·        Leave Payment - As per Holiday Act 2003

·        KiwiSaver contributions

·        Maintaining payroll records – payments and documentation

GST Filing

Timely Processing

We ensure that we file all GST Tax returns two weeks before the due date. We keep our clients informed before we proceed. This ensures that the client is at ease.

·        GST Filing        - Timely filing of Bi-Monthly or Six-Monthly returns

Monthly / Quarterly Advisory

The clients are in a position to process their reports from the software chosen. Based on the service requested, additional reports are also given that are not available in their chosen software. These reports enable the client to make corrective business decisions. Business Pillars reaches out to clients who require more assistance.

Monthly Management Meetings

The primary purpose of a monthly management meeting is to get the business to grow. This is either done through a phone call, zoom, or meeting in person.

Cash flow Management

Managing cashflow is a significant responsibility faced by most small businesses. We reach out to businesses making it stress-free to ride on the highs and lows of the cash flow throughout the year.

We assist in producing a cashflow statement which is a financial statement that summarizes the amount of cash entering and leaving the business. The cashflow statement measures how well the business can manage its cash position, meaning how well the business can generate cash to pay its debt commitments and fund the day-to-day operating expenses.

Budget Forecasting

Small business budgeting and forecasting

We need to get some relevant numbers to know what the future will look like regarding a business. Budgeting and forecasting will help to support this vision. Business Pillars can work alongside you to understand these basics so you can build a financially sustainable business.

What is a budget?

The budget estimates how much money will come in and go out from your business over time (usually a year). Budgeting and forecasting normally benefit all businesses and first-time startups to see if they can afford to run the business and compensate for all their hard work with a good return for their initiative.

What are the main principles of having a budget

Budgets forecast the money-making possibility of a business. It will also highlight things like:

  • How much will it cost to startup?
  • How much money is needed to borrow?
  • When will be the breakeven point?
  • How much should the customers be charged?
  • How many staff are needed?

Monthly / Quarterly Advisory

The clients are in a position to process their reports from the software chosen. Based on the service requested, additional reports are also given that are not available in their chosen software. These reports enable the client to make corrective business decisions. Business Pillars reaches out to clients who require more assistance.

Job Management

Job Management is software that supports project managers and teams to complete client requests and projects efficiently. Most professionals depend upon this job tracking software which assists them in supervising multiple sections of a business. Business Pillars are here to assist in setting up this service to track income and expenses related to service jobs.

XERO and MYOB both have the capability for Job Tracking

These are the advantages:-

·        Create quotes immediately

·        Easily track jobs from quote to invoice

·        Schedule the jobs on the go

·        Get paid quicker