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How small business owners can cope with financial stress

A small business owner appears stressed as she handles her finances.

Small and medium-sized business (SMB) owners have a lot of responsibility. They typically handle every aspect of the business from production, sales, and customer relations to bookkeeping and human resources. They’re also directly responsible for the success of the business and carry much of the financial burden that comes with its operation. 

So, is it any wonder that 44% of SMB owners report they experience financial stress and fear about the future of their business? No, it isn’t. But, there are still ways for them to better cope with it and improve their overall mental health.

What’s financial stress and what causes it?

We’ve all experienced some form of stress during our personal or professional lives. Financial stress is exactly what it sounds like: a form of mental distress caused by facing financial and economic issues, especially when these are persistent over a long period. 

Whether they’re simply not earning enough, having trouble managing their finances, or facing cash flow issues, people are prone to stress out about money.

With small business owners, this stress is aggravated by the added sense of responsibility. After all, they’re not just providing for themselves and their family. They’re also responsible for their employees, contractors, and business partners or customers. If the business fails, it will affect all these people and that’s a lot of pressure to take on. 

More so, unlike employees, entrepreneurs and business owners don’t always know exactly how much they will make each month, and a slow season or poor cash flow management can take their toll.

The effects of financial stress on entrepreneurs

Like any form of mental aggravation, financial stress can have a significant impact on an entrepreneur’s mental and physical health as well as their relationships with close ones.

Some of the effects of financial stress on business owners can include difficulty sleeping, intrusive thoughts about money, mood swings, anxiety or depression, social withdrawal, constant guilt about spending money, and even high blood pressure.

How to cope with financial stress as a business owner

You may be thinking that the only way to alleviate financial stress is by making, or at least saving, more money. 

While that certainly can’t hurt, in this article we’ll focus on other measures you can take to ensure your finances are managed correctly and efficiently. This way, you’ll know exactly what’s in store and have a chance to prepare, mentally and financially, without needlessly stressing out.

Get friendly with your books

Your books and financial reports are not the enemy and you should stop treating them as such. Take the time to review them on a regular basis so you know exactly where you stand, how much money you owe, and how much you expect to make and when. 

While it’s tempting to bury your head in the sand, a close eye on your books will give you an opportunity to discover some areas where fat can be trimmed and others where you should invest in growth.

Optimize your cash flow

Sometimes the problem isn’t that you’re not making enough money but that it’s not coming in on time or in a predictable manner. It can simply be a matter of bills that are due before funds come in. You know the money’s on its way, but you still don’t have enough cash to cover your expenses right now. 

If this is what you’re experiencing, you’re suffering from a case of negative cash flow. This means there’s more money coming out of your business than into it at a given period, creating a temporary gap in your available cash.

Negative cash flow can be caused by late payments and poor expense planning among other things. To avoid it, it’s crucial to create a cash flow forecast, which can help you predict how much cash you’ll have throughout the year, whether you need to brace for specific months that are generally slower, and if you can put more money aside during better periods.      

It’s also important to monitor your bank and cash flow statements before making a large payment to ensure you have enough available funds and you won’t be draining your account. 

If you find yourself in a temporary cash flow crunch, consider using your credit card to cover some of your business bills. This lets you put off the payment until your card’s next billing cycle, providing some breathing room whenever you need it.

Digitize AP and AR

Accounts payableAccounts payable (AP)Accounts payable is an accounting term that refers to the outstanding bills or invoices for goods and services already provided to your business but that you haven’t yet paid for. and receivableAccounts receivable (AR)Accounts receivable is an accounting term that refers to all the money customers owe your business for products or services rendered and invoiced, but not yet paid for. (AP and AR) are both crucial and challenging tasks for small businesses. 

Switching to a digital payment platform like Melio lets you:

  • Save on bank fees when sending or receiving payments.
  • Spend less time on bookkeeping busywork and more time on generating revenue.
  • Delegate without losing control by implementing payment approval workflows.
  • Keep track of your payments, both incoming and outgoing.
  • Send payment reminders as needed.
  • Get paid faster by offering your customers better payment options.
  • Schedule payments in advance so you pay on time, never too soon or too late.
  • Pay bills with a credit card (even if your vendor doesn’t accept cards).*

Create a budget (and stick to it!)

Having a plan is always good for your peace of mind. 

A good budget outlines exactly how much you can afford to spend, on what, and when. It takes into account your projected revenue, profit,ProfitProfit is the earnings that remain after you deduct expenses from revenues. Net profit is what’s left when all types of expenses are deducted from sales. Gross profit is what’s left after deducting the costs associated with making and selling the products, or the costs associated with providing services. and costs, so you can responsibly plan for growth and set up your goals. 

The budget can also be used as a benchmark to determine how successful your operation was over the past year. 

Once you’ve created your budget it’s important to stick to it and try not to get sidetracked. There can always be unexpected expenses (which you should also allocate a budget for) but constantly going over budget is a sure way to lose your head. 

If you recognize a growth opportunity that can’t wait until next year’s budget, try to find a way to adjust the existing plan and squeeze it in without overspending. For example, maybe you’ll find you don’t have to spend as much on refreshments or office supplies as you thought. You can then cut those accounts to pay for an extra piece of machinery that can increase production.

Hire an accountant

We know. The last thing you want is to spend more money but hear us out. If you’re too overwhelmed by bookkeeping then you’re probably unable to pay enough attention to the other aspects of your business, like perfecting your product, providing services, or managing customers. 

On top of that, you may also make accounting mistakes that can be both time-consuming and costly. 

If some of your stress is caused by managing the books, it’s probably time to delegate and hire an accountant or bookkeeper to take the load off. A professional accountant won’t just keep your books in order. They can also help you build the right strategies to address various financial issues and achieve your goals in line with your income and assets without breaking the bank. 

Pay yourself fairly

You can’t expect to not stress about money when you’re not getting any. Too many business owners are opting to forgo pay (partially or entirely) to help the company. But, an entrepreneur (and their family) has also got to eat. 

Being unable to pay your personal bills is a surefire way to get demotivated and stressed about your business and your financial situation. So, pay yourself a reasonable living wage, even if that means cutting back on other areas of the business. Having a clear set income will also allow you to build a personal budget that can be manageable. 

It may require tough choices, but it’ll pay off for the company in the long run to have an owner who isn’t constantly worried about how they’ll cover their next mortgage or car payment. 

Don’t get too attached to your plans

Beware of the sunk-cost fallacy. This is a common phenomenon that affects everyone, especially small business owners. It means that the amount of time, money, or effort you invested in a specific strategy, plan, or product offering makes you want to stick to it, even when it clearly isn’t working. 

Don’t fall into this trap.

It’s often better to cut your losses than to keep betting on the wrong horse. While you’ll never see your investment returned at least you won’t continue to spend. You’ll also benefit from the learning experience so we suggest you count the costs you can’t recover as valuable tuition and move on.

Less stressing, more digitizing

Being a business owner is always stressful and you can never completely eliminate the challenges that come with it. However, following the strategies outlined above can help you keep a clear head when it comes to your business’s finances. 

Using digital tools to manage your business payments is a great place to start alleviating your financial stress. By providing a clearer picture of your finances, improving cash flow, and ensuring you get paid on time, these tools can help you focus on what really matters. Organizing business ideas can also be helpful—make sure to check out this article.

Ready to get started? Sign up for Melio’s AP and AR platform for free, with no subscription fees or strings attached.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.