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The Green Sheet Online Edition

March 14, 2022 • Issue 22:03:01

Financial planning for SMBs looks radically different now   

By Chad Otar
Lending Valley Inc.

Every single business—regardless of industry—will have to tackle financial planning differently going forward than they did before. Sure, some bedrock principles of financial planning for small business will remain unchanged. And your goals (as well as your results) are going to dictate a lot of your decisions moving forward.

At the same time, though, the last two years have radically changed so much in the business world that it would be impossible (and irresponsible) to ignore these seismic changes when planning for your next year of operation. In this article, I'll run through some of the most important things to focus on when planning the financial future of your business.

Building an emergency fund is mission priority number one

According to information released by the Federal Reserve in the 2020 Small Business Credit Survey, nearly 70 percent of small businesses have faced cash flow challenges within the last 12 months. Cash and capital crunches kill businesses all the time. In fact, it’s one of the biggest reasons that small businesses shutter their doors forever.

In 2022 and beyond, it is critically important to financially plan for an “emergency fund” that can sustain your business for anywhere between three and six months—and ideally even longer than that. Obviously, most businesses won't be able to build this reserve overnight. But there has to be a goal to achieve these reserves, and there have to be action plans put into place to get there as quickly as possible.

Debt needs to be attacked and refinanced ASAP

It’s hard to imagine that there are even a handful of businesses (especially small businesses) in the United States that didn’t have to lean on loans and financing in the last two years to keep their business up and running.

Unfortunately, a lot of debt that was accrued was particularly expensive—with sky-high interest rates putting a huge dent in small business finances in both the short and long-term. Reducing the amount of money spent on interest and paying down on the principal at every opportunity gives small businesses a lot more freedom and a lot more flexibility.

You may not ever reach "debt zero" with your small business—and it may not even be advantageous to try—but you do want to come up with a plan to get rid of as much expensive debt as possible.

Bootstrapping is back on the menu

If there is a silver lining for the last two years of mayhem that hit the business world, it has to be this: Almost everyone learned how to succeed with far fewer resources than ever before, literally bootstrapping to build, grow and succeed during some of the most trying times in business history.

Businesses that worked hard to survive the pandemic now have a better idea of how to sustain and grow their operations without having to throw mountains of money into the mix. Getting lean, cutting fat, and maximizing profits at the same time will be a big part of financial planning for 2022 and beyond.

Small businesses are planning for every conceivable black swan event

Truth be told, because of the ridiculously fast pace of our modern world, lots of small business owners and entrepreneurs got suckered into the belief that long-term planning was obsolete.

We have all collectively learned a hugely valuable lesson with the pandemic, recognizing that while businesses have to remain flexible to adapt and adjust on the fly in today’s lightning quick business environment, they also need to prepare for black swan events (unpredictable, catastrophic events) in the long term, too.

Start thinking about how to work on your business and not just in your business. Create an operation that is as resilient as possible. If you plan for black swan events that may happen in the future, you’ll be ready to confront those problems head-on should they come to pass.

Expect major investments in pandemic-era business models

Starting in 2020, the pandemic and related measures to stop the spread of COVID-19 shook up business models from top to bottom, and most business experts and industry insiders believe that a lot of these new models are going to stick around permanently.

Online shopping, curbside pickup, a multitude of delivery options, and a host of other business models really came into their own as a direct result of lockdown policies, social distancing and the pandemic in general.

Consumers appreciate the convenience that a lot of these solutions now offer, and they won't be happy to see them slide by the wayside as we climb out of this global catastrophe. Savvy SMB owners are finding ways to meld their old-world business model with their new-world business model, enjoying the best of all worlds and making sure their customers are well taken care of.

Small businesses are looking to take bigger risks

Finally, when it comes to financial planning for 2022 and beyond, small businesses are going to want to look for opportunities to stay optimistic, to innovate and iterate, and to take bigger swings to build the businesses of their dreams.

Don’t be surprised if small businesses that weathered the pandemic storm come out of the gates roaring and ripping to go. That means they'll reinvest, recapitalize and dive headfirst into the work of building their businesses back up so that they can create the financial future they and their families deserve.

Note: I used the following resources in researching this article:

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Chad Otar is CEO of Lending Valley Inc. For information about the company, please visit www.lendingvalley.com. To reach Chad, send an email to chad@lendingvalley.com.

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