Navigating Financial Stressors in New Businesses

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No matter how much planning goes into a new business strategy, unexpected financial stressors are almost always a given. On top of covering an abundance of startup costs — from business licenses and equipment to inventory and rental deposits — it’s not uncommon for entrepreneurs to spend more or earn less than expected during their first year in business. Nearly 20% of businesses fail to make revenue within their first year of operations.

Several factors contribute to this failure, and trial and error with budgeting can be one such factor. After all, cash flow management problems are the leading cause of small business failure.

The good news is that unexpected costs don’t instantly lead to business failure. With the right financial strategies, your company can thrive even when faced with major challenges. Here are some tips for navigating four common financial stressors, so you can come out on top.

1. Supply Chain Disruptions

Supply chain disruptions have been a common stressor facing all companies as of late, but it may not be one that you account for when you’re planning your launch. However, shortages and delays aren’t without their financial costs. Supplier costs always rise when demand is significantly higher than supply, so you may end up paying more for raw materials, wholesale goods, shipping, and more than you’d expect.

Supply chain disruptions can even lead to the loss of new loyal customers, who may grow frustrated by constant shipping delays and out-of-stock products in your store.

To avoid the financial stress caused by supply chain disruptions, it’s important to boost your company’s emergency preparedness when creating your sourcing plans. For example, you can plan to stock up on raw materials whenever they’re available, which allows you to budget for more warehouse space instead of facing the unknown costs of disruption.

2. Delayed Payments

Whether your business is new or old, clients don’t always pay on time. If your new business sends invoices or allows payments in installments, you can expect some overdue invoices during your time in business. This means you may end up chasing down payments some months instead of getting the positive cash flow you expect.

As your business grows and you gain more customers, delayed payments can become less of a stressor for your business. However, when you’re starting out, it’s important to maintain an emergency fund for peace of mind. Instead of becoming completely dependent on your clients’ on-time payments, set aside money every month in case payment delays put you in the red. When you’re not even breaking even, you can pull from your emergency fund and avoid a disastrous financial event.

3. Equipment Failure

If you’re purchasing brand new equipment for your company, there’s a good chance it’s covered under warranty. However, some new business owners only have the funds to purchase used equipment, which can be prone to breakdowns if poorly maintained — even in your first year of business. If a costly repair or a new machine is needed, you can be out thousands of dollars.

This financial stressor isn’t exclusive to companies like warehouses and restaurants that use an abundance of expensive equipment. Your business may face the unexpected costs of equipment failure when your AC goes out or when you spill liquid on your laptop.

If you’re faced with this financial stressor, you can consider taking on small business loans that you can feasibly pay off early to avoid excess interest payments. Ideally, look for loans that have low-interest rates and don’t require collateral.

4. Inconsistent Cash Flow

Most new businesses often experience inconsistent cash flow. You may see a spike in revenue when you first launch, slowing revenue for a few months, and more rises and falls later on. Startups are still figuring out what works for their customers, which means their marketing and pricing strategies may not be ideal right off the bat.

To alleviate your financial stress, your business, marketing, and financial strategies should be highly flexible documents that can evolve. As new industry trends rise, and demand changes, your strategies should be adaptable enough to work in a new market environment. This way, you won’t feel glued to the tactics you’re currently using if they’re not working.

While it can take some time before your revenue and profit stabilize, it eventually will if you’re listening to what your customers and data are telling you. In the meantime, consider implementing some stress relief practices — such as maintaining a work-life balance or spending time with your support system — to keep your mental health in tip-top shape.

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