No matter the economic environment, small business owners face one challenge after another as they launch, grow and maintain their businesses in the U.S. The key to weathering the upheavals of market shifts, changing consumer demands and persistent labor shortages is through strategic agility and resiliency.

Here are some tips for staying financially nimble during economic and market volatility.

Be competitive in the labor market by investing in retention and recruitment

According to the NFIB Small Business Jobs Report‡, 40% of all small business owners reported job openings they could not fill in the current period (seasonally adjusted), along with labor quality being reported as one of the top small business operating problems. With this in mind, it is more important than ever to invest in your current employees, anticipate more expensive new hires and identify labor-saving processes or equipment that can alleviate workload and increase efficiency.

You can be competitive even with the current labor shortage by raising wages or enhancing other types of compensation, such as 401(k)s or providing a more holistic benefits package to make up for a difference in salaries across the market. Remember, it’s often more expensive to hire new employees‡ than it is to elevate talent you already have in house.

Additionally, think outside of the box when it comes building a benefits package that helps attract quality new hires. Consider providing diverse benefit accounts such as HSAs and FSAs, workplace flexibility, and offering accessibility to leadership and mentorship programs with existing employees. The American workforce continues to evolve, which means business owners of all sizes need to adapt – and that may mean spending more time and capital on employee benefits that help retain your staff.

Regularly evaluate your budget (you’re likely overdue for a review)

With the continuous uncertainty of today’s economy, it is imperative that you continue to evaluate your budget to ensure it is reflective of the current environment and meets your business’s ever-changing needs. For example, average wages for new hires have increased in the past couple years, so it might be a good idea to add room for this in your current budget. In addition, the costs of professional services that businesses need – like insurance, shipping and storage – are also increasing, so be sure to consider what your industry and company need and bake that into your plan. Be sure to also account for new equipment, fixtures, furniture and expanded facilities or building expenses in your long- or short-term budget depending on your growth plans.

Financial planning with an eye on “what ifs” helps give you confidence in your balance sheet and can help you pivot effectively if financial headwinds come your way. While you are evaluating your budget, brainstorm cost-cutting measures that can be quickly implemented if revenue doesn’t match expectations. By doing so, you can better manage setbacks as they come, whether it’s due to logistics or materials, without sending your budget into a tailspin. Consider this a financial “belt tightening” plan that is in the wings should you need it.

Don’t mingle business and personal finances: Stick to your business credit card

While you might think it’s a good idea to use your personal credit card or finances to cover business expenses as you build your company, this could actually do more harm than good. Because each business purchase opens the risk for an adverse impact on personal credit score and debt-to-income ratio, this decision could prevent you from reaching financial goals like retirement, family building, home buying and more. Also, there is the potential to inadvertently mix up personal expenses with business expenses, which can lead to complications for accounting and tax purposes.

Business credit cards may also come with benefits, such as a higher credit limit than personal credit cards, which provides you with more spending power. Business credit cards are also not associated with your personal credit line, so you have the freedom to make larger purchases without the worry of impacting your credit utilization ratio. Credit cards are also valuable in helping you manage cash flow, payment timelines and building in a financial “float” for the months or weeks when you use credit instead of cash.

Stay on top of your business debt and expenses

Debt has a tricky way of sneaking up on you if you don’t regularly check in with it. As a small business owner, it is essential for you to manage and pay down your business debt as much as possible. Inflation can actually work to your benefit when it comes to high debt, since it lowers the value of the dollar while simultaneously increasing the value of assets – making it worthwhile for you to pay your debt back faster.

For example, your real estate loan payment may remain the same, but the value of your property may have increased, so in that instance you gain from inflation. Similarly, inflation can open opportunities to evaluate your pricing structures; as the economy collectively raises prices, you can too. Remember to routinely analyze your business expenses and see where you can trim inventory or supply costs. Consider buying in smaller batches, negotiating contracts or exploring lower vendor costs – anywhere you can cut back and keep a bit more cash on hand makes a difference.

Staying on top of business debt can also mean ensuring you know when you need it. For example, we often see clients applying for lines of credit when finances are dire. Instead, look ahead at your capital needs and consider lines of credit before you desperately need them for business expenses. With a forward-looking mindset, you may be better able to secure a good line of credit offer than if you wait until the last minute.

Improve cash flow by implementing incentives for clients

A key aspect to maintaining a strong business is identifying ways to improve cash flow. One way to achieve this is to streamline your accounts payable and accounts receivable processes. Consistently review billing and invoice timing, payment steps and ways to reduce challenges in receiving payments.

As a way to both stabilize cash flow and retain clients, you can implement incentives that reward clients for paying on time or early – or even in cash if your credit processing fees cut into your bottom line. Providing free merchandise or a discount for in-full, cash or early payments may help your clients view efficient payments as a perk to them rather than an annoyance for you.

Do not be afraid to be more assertive with accounts receivables to ensure you are converting business deals into cash swiftly. If, as a small business owner, you also serve as your accounts receivable team, then take this as a reminder to protect your business inflows, even if it means following up on outstanding accounts and having uncomfortable conversations.

Ready for whatever’s next

This year is proving to be yet another year with economic ebbs and flows, but the above tips can help your small business not only stay afloat, but also put you in position to thrive through many challenges. Remember, too, your banker is there to help advise and support you and your business through any financial situation or forecast, so lean on them to help plan for long-term success.

If you are interested in learning more about how UMB can help your business, visit our website.

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