Research conducted by Innovation, Science and Economic Development Canada shows that Canadian businesses with five employees or less have a 62.5% chance of making it to 5 years in operation.
There are many reasons for the failure of SMEs, but poor financial management is one of the most common. Not knowing how to manage money, look after the bottom line or maintain a steady cash flow can all prove fatal—fast. Cash flow can be a challenge to manage, but if you can get it right, it can absolutely make or break your business, no matter how big or small.
There’s a reason why managing money matters is such a common downfall: it’s tough. And if you don’t have a background in financial administration, it’s much harder. This can lead to financial stress, which slows down management techniques and causes burnout on a personal and professional level.
However, learning the basics of money management is crucial for any SME. And once you’ve got it down to a fine art, you can focus your energy on other aspects of business that push it forward.
Get Your Financial Affairs Organized
Organization is the first (and probably the most important) step towards financial security. Knowing exactly what your overhead costs are, where your budget lines lie, how much money comes in and out of your business—all of these factors provide crucial information about the state of your finances.
There is a wide variety of FinTech (financial technology) tools and platforms designed specifically to keep your financial affairs in order. Take advantage of them. They can help you take a more efficient, streamlined approach to money management that requires little direct input from you and your employees.
One of the best ways to reduce stress around any scenario is to demystify it as much as possible. The more you know about your finances, the less scary and unpredictable they will be.
Keep Tabs On Your Burn Rate
Your burn rate is how quickly you spend your allocated budgets. When businesses exhaust their cash reserves too early, it jeopardizes every financial move going forward.
To stop this from happening, keeping a close eye on your burn rate can ensure that spending stays within set limitations and no borrowing from the future is necessary.
Here are some more tips for successfully and effectively managing your SME’s burn rate:
- Be realistic and conscious of changing expenses
- Rather overestimate than underestimate your burn rate
- Understand the motivations behind your spending
- Identify issues before they become significant
Even though tracking these kinds of expenses can be stressful, doing so will significantly reduce the potential for future financial problems. The sooner you can identify issues, the better.
Create An Emergency Fund
If your business is still in the early phases of development, an emergency fund might seem too far out of reach. But even if you can only put aside a tiny percentage each month, those small contributions will add up over time and they’ll get you into the all-important habit of financial discipline.
An emergency fund will help to lift the weight off your shoulders. Knowing that there is some money—no matter how little—set aside for future situations can make a huge difference to your financial stress. If you can’t set aside money, make sure that you’re eligible for a small business loan by keeping your financial affairs in order. Taking a loan isn’t always a bad option, especially if you’ve done your due diligence and know that you can repay it.
Get Professional Financial Help
If you’re in a position to obtain the professional help of a financial advisor, you absolutely should. And if it’s not possible right now, make it a future goal.
Balancing budgets and balance sheets is a complex task that people dedicate entire careers to. So don’t get down on yourself if you struggle to maintain a strong grip. Your expertise is simply in something else. But that doesn’t mean you shouldn’t get help where you can, even if it’s just part-time, on a consultation basis, or from some of the many financial and tax tools available online.
A professional financial advisor can take all that money stress you have and turn it into something much more understandable and sustainable. They can keep track of expenditures, draw up specialized budgeting plans, do your taxes, and handle all the financial admin you don’t have the time or energy for. It’s a win-win.
Focus On ROI
ROI (Return On Investment) is another important component of business to keep track of if you are looking to reduce financial stress. Being able to track your growth over time is an enormous advantage for any SME, and can help alleviate the strain of financial management.
ROI is a metric that every SME business owner should maintain sight of throughout the fiscal year, because it sheds crucial light on your expenditure rates and whether or not your current budgets are sufficient for long-term growth. Don’t leave it out of your financial management strategy!
Your employees are what drives your company. Without them, profit would be impossible and office life would be miserable. By nurturing your employees, you can encourage greater productivity and engagement levels, and make it generally easier to tackle challenges head-on.
It’s important to look after the needs of the people who work for and around you because they are the life force of your business. Plus, they deserve it. You can nurture your employees by:
- Asking for feedback on their work experience
- Providing flexible work hours
- Offering hybrid work options (if applicable)
- Recognize and praise accomplishments
When you look after your employees on an emotional as well as physical level, you invest in the morale and productivity levels of your company.
Maintain A Long-Term Perspective
Looking beyond the day-to-day and into the future is a great way to reduce financial stress. It’s easy to get lost in the haze of numbers and bills, but when you focus on your long-term goals, you have a roadmap that guides you. Remember to think ahead and maintain a higher perspective.
The Bottom Line
Managing money matters may be tough, but it is always worth the effort. With these tips for reducing financial stress in your business, anyone can develop a healthier relationship with money management.
Once you have a clear way forward and a future plan, growing your SME and maintaining your cash flow will no longer feel as daunting.