5 Financial Tips to Help Small Businesses Prepare for the Unexpected
Running a small business comes with its fair share of challenges. In an unpredictable world, it’s not only large companies or individuals that face financial ups and downs—small businesses are just as vulnerable to sudden expenses, economic downturns, or unexpected events. Being prepared for anything that could come your way is essential to keeping your business afloat during tough times. Here are five practical tips to help ensure your small business is ready to weather any financial storm.
1.Build a Business Emergency Fund
Just like individuals need emergency savings, small business owners should also set aside funds for unexpected expenses. Whether it’s a sudden equipment failure, a legal issue or a dip in sales, having a dedicated business emergency fund can provide the financial cushion you need to manage through tough periods without taking on debt or dipping into your personal savings.
How much should you save? Experts recommend having at least three to six months of operating expenses in your emergency fund. While this may seem like a lofty goal, the key is to start small. Set aside a percentage of your revenue each month and let it build up over time.
2. Monitor Cash Flow Regularly
Cash flow is the lifeblood of any small business. Even profitable companies can experience cash flow shortfalls that cause stress on the business. One of the most important steps you can take as a small business owner is to monitor your cash flow regularly—”know your numbers” as they say on Shark Tank. Business owners need to know their inflows and outflows, unit economics, and understanding seasonality. Being in tune with your business will help spot potential issues early and help you make informed decisions. For example, during slow periods or unexpected downturns, reviewing your cash flow can highlight areas where you can temporarily cut costs to maintain liquidity.
3. Diversify Your Revenue Streams
Relying on one source of revenue can leave your small business vulnerable if demand suddenly drops, changes to your customer’s business, or an economic shift affects your industry. Diversifying your revenue streams is an effective way to protect your business from financial ups and downs. For example, if your business relies heavily on in-person services, consider exploring e-commerce options or offering virtual services. Having multiple revenue streams can stabilize your income and provide much-needed flexibility during leaner times.
4. Manage Your Debt
The latest Small Business Cash Flow Trend Report conducted by Enova’s OnDeck and Ocrolus, revealed that nearly 75% of small businesses are bypassing traditional bank loans and turning to alternative lenders as their primary funding option.
While debt can be a helpful tool for growth, too much of it can put a strain on your small business during tough times. It’s important to create a plan to pay it down, especially during periods of strong cash flow. Doing so can help free up resources in case your small business faces financial challenges in the future.
5. Invest in Business Insurance
Often overlooked, having the right insurance for your small business is an important safety net for entrepreneurs. From property insurance to liability and business interruption insurance, having the right coverage can protect your business from unexpected losses. In times of financial uncertainty, insurance can provide the peace of mind you need as a business owner to stay focused on running your company without worrying about how you’ll cover the costs of an unforeseen event. Business interruption insurance is particularly important as it can cover lost revenue and operating expenses if your business is forced to close temporarily due to circumstances like natural disasters, fires and more.
Running a small business comes with ups and downs, but with the right financial strategies in place, you can be ready for whatever life throws at you. Having a plan to protect your business by being proactive about building an emergency fund, monitoring cash flow, diversifying revenue streams, managing debt, and investing in the right insurance should allow your business to be resilient through uncertain times.
DISCLAIMER–This content is for informational purposes only and should not be relied on as advice of any kind. Enova and its affiliates do not provide financial, investment, legal or tax advice.