In my 13 years of being a strategic business partner to small businesses, I have worked with a portfolio of over 300 customers that continues to grow every year. My customer base is very wide and diverse, and it has been great to see them grow and evolve through the years. Many of them have faced the highs and lows of our economic climate.
The current trend is for small businesses to keep cash as a safety net and for managing expenses. Many are financially cautious and unwilling to buy capital for multiple reasons. Some reasons are not new to small business owners. Historically, they are more susceptible to market volatility compared to larger businesses and recent evidence of a slowdown in manufacturing activity has contributed to a dip in overall small business optimism. Not only are manufacturing companies affected, over 98% of them being small businesses, but businesses that provide services will soon be affected.1 A slowdown in manufacturing activity has undoubtedly affected economic outlook for many small businesses, even if they are not in the manufacturing sector.
While the cyclical nature of the market is familiar to small business owners, leading many to hold cash during periods of potential economic downturn, other reasons are newer and more enduring.
1. Labor shortage
As digital transformation brings new opportunities, it also presents small businesses with new challenges. Small businesses today struggle to find and keep qualified workers to manage increasingly complex equipment and business software. Although automation, software and artificial intelligence can mitigate some business losses due to labor shortage, many businesses still struggle to find people with the right skills set and technological know-how to help operate and manage their businesses.
In addition to recruiting qualified and talented workers, retaining them is also a challenge in the current labor market. With jobless rate at 3.6 percent in April,2 many small business owners have also noted a challenge in recruiting and retaining top talent for the job. Labor shortage remains a problem for many small business owners.
2. Lack of capital and cash flow
Investment in new technology to grow in spite of the labor shortage requires capital but nearly two in five small business owners in the U.S. do not apply for loans.3 Yet, a majority of small business owners worry about cash flow problems. This is understandable because poor cash-flow management can expose any businesses to unnecessary risks. In fact, the top reasons why small businesses fail are due to poor cash flow management skills and starting a business with too little money.
Even though these reasons are entirely avoidable, many small business owners fear the possibility of getting their loans rejected and allow that fear to stop them from applying for a business loan or to even begin the conversation with a banker.
Business owners today are also faced with new risks in the form of cybersecurity. Digital technology has brought new business opportunities, streamline workflow process, and increased productivity. However, digital transformations have also exposed small business owners to newer forms of risks such as online fraud, ransomware and other types of data breaches. On average, small businesses lose $80K to cyber-related crimes.4
Cyber-protection has become an extra cost burden for small business owners. Often, business owners need to invest in robust cybersecurity protection and IT infrastructure, as well as insurance coverage for data-related risks. Understandably, many small businesses avoid this cost because they do not consider themselves targets for cyberattacks due to their small size or the perception that they do not have any data worth stealing. That cannot be farther from the truth. Small businesses have valuable information that cybercriminals seek such as customer data, bank account information, business’s finances and intellectual property.
Many small businesses lack enough resources needed for a robust cybersecurity system, and with 43 percent of cyberattacks targeting small businesses, having cyber-protection is necessary to protect your business.5
Don’t give up on your dreams
With new risks and the cyclical nature of the market, the future for small business owners may sometimes seem daunting. But you do not have to face the future alone. My piece of advice is not to let that fear stop you from starting a conversation with a financial expert. You may be surprised at the range of financial solutions and financing options available to small business owners, regardless of where you are at in your business journey.
I often tell my clients to contact me with any questions regarding their business or the current economic climate. The more open we can be with each other, the faster my team and I can react and keep everything forward in a positive direction for them. I have had numerous customers that have simply needed a working capital line of credit and as the business has grown and changed, so have their needs. Evolving with their business needs, I partner with them to create complete banking packages. This means bringing in additional bank partners who may meet a specific need of our customers.
For small business owners at the start of their journey, partnering with a wealth advisor or banker to discuss financing options such as using eligible retirement funds, mortgage refinancing or SBA loans may be beneficial. Take the first step to consult with a business banker to learn more about SBA financing with favorable terms.
For small business owners who are looking for financial solutions to solve newer risks such as cybersecurity or address enduring problems such as labor shortages, there are many readily available solutions. Start looking at cybersecurity coverage or optimize your cash flow and working capital with secure, scalable treasury management solutions.
To address challenges and risk exposures old and new, always seek a business banker who is willing to be a strategic business partner. Your banker should be just as invested in the success of your business as you are. Find a banker who is committed, goes above and beyond and has enough specialized knowledge to advise on cash flow challenges unique to small businesses and offer appropriate solutions. For instance, my team and I, who specialize in different aspects of a business, have experience helping diverse business customers overcome financial hurdles. With a good financial partner, you can focus on what you do best - managing and building your business.