The 3 Biggest Financial Fears of Small Business Owners
Along with the freedom and empowerment that comes from being an entrepreneur, there also comes a fair amount of anxiety. And a lot of this anxiety revolves around MONEY.
That’s why today we’re going to dive into three of the most common small business financial fears. PLUS, I’m going to reveal the easiest (and quickest!) way for you to overcome them.
You ready? Let’s go!
The #1 Financial Fear of Small Business Owners: Money Itself
One of the MOST common fears of small business owners is money itself! So before we even start to unpack other fears related to your finances, we have to talk about the fear of understanding and taking ownership of your money.
I hear entrepreneurs, particularly women, claim all of the time that they “just aren’t good with money” or “don’t understand the money side of things.”
And I get it. Women are fed a lot of money myths in their lives, BUT I want to help you bust through these myths! Because there is power in understanding the financial side of your business, and it’s not as hard as many people think.
Building your knowledge about money and financial language makes it less mysterious and lessens the stress money has over you.
According to a recent study by Ellevest, women’s financial health is at the lowest it has been in five years, and 55% of women stress about money more than once a week. Even scarier, 43% of women actively worry about money at least once a day.
...So, I think it’s safe to say a lot of us are stressed when it comes to our money!
The antidote: Understanding the finances in your business and unpacking money-related terms in a way that’s applicable and makes sense for YOU. This understanding is where you will start breaking through the imposter syndrome and worry!
The #2 Financial Fear of Small Business Owners: Making the Wrong Choice with Your Money
If many small business owners are afraid of money itself and don’t feel like they understand their finances, it makes sense that another common fear is making the wrong choice with the money you do have.
What if you invest in the wrong thing? What if you overcommit yourself financially? What if you take on too much debt?
And truthfully, these fears are founded.
For instance, toxic debt can creep into your business when predatory lenders take advantage of your need for an immediate cash influx, so you begin taking on loan after loan — without a clear plan for how those loans will get paid off — so you can keep growing now.
The problem is all of those loans are going to pull you deeper and deeper under the water, and could eventually drown your business. Because debt is a mechanism for shifting today’s expenses out to next month’s or next year’s income. So if your revenue doesn’t increase to cover all those debt payments plus your ongoing expenses your cash problems will only get worse.
I had one client who had this happen with 3 different online lenders. Worse, these lenders used the courts to put liens on the company's bank accounts and then electronically took literally all the money out of their bank account. The lenders even directly took payments from customers without notifying the business! Just like that, the business was 100% out of cash.
This was possible because the loan documents included a confession of judgment clause which means the borrower waived the right to contest their claims in court.
Other companies have used merchant cash advances (such as Square loans or Shop Loans, which also automatically take a % of your cash revenue BEFORE it is sent to your bank, so they skim the repayment off the top. These tend to have really high fees/interest rates.
The antidotes:
Learn to track the money in your business and base your decisions on your financial reality. Consider the return on investment for both how you use your cash in your business AND any debt or loans you consider.
Have a long-term plan that is both strategic and financial to guide your business decision. Avoid making decisions for the immediate need of the business at the expense of your long-term strategy. And
For the sake of your peace of mind: NEVER sign a loan document if you don’t understand exactly what you are signing and what the repayment terms mean.
The #3 Financial Fear of Small Business Owners: Running Out of Money
With a recession happening just as many small businesses are still recovering from the pandemic, running out of money is a very real fear for entrepreneurs.
Fundera by NerdWallet recently shared a U.S. Bank study that showed a whopping 82% of businesses that went under cited cash flow problems as a factor in their failure.
Monitoring your cash to make sure you pay for everything you need to pay for each month is crucial! And toxic debt isn’t the only thing that can impede your cash flow.
Cash management directly affects everything else in your business, including:
How profitable the business is
How big a cash reserve you can build for your business
How much and when you can invest in growth
How long your business can keep going, especially in a tough economy
The antidote: Create a cash flow plan to stay on top of revenue and spending from week to week in your business. Once it's set up, you can roll the cash plan forward and keep it updated!
Where can you find all three of these antidotes in one place?
Join Meaningful Money Essentials and work alongside other business owners to step up your finances in 2023!
In 3 short weeks, this course will give you the skills you need to understand your business finances and gain control of your cash flow.
You'll learn from 2 finance professionals who have worked with over 100 companies on accounting, coaching, and business growth. In the course, you'll gain three essential skills:
Use our checklist and training to review your bookkeeping to make sure it is all solid.
Learn to understand and question your financial reports so they can make sense forever after.
Create and use a 13-week cash plan that works for you and helps you see how your decisions today will affect your bank account next month.
You'll also be among the first to gain access to our community of social-impact business leaders.