Tech Opens a Whole New World for Business Money Matters
Advances in technology might affect how budgeting might change in the future. The world of finances and financial security could look vastly different.
James L Katzaman
Small companies have room to make best use of flexibility
Advances in technology might greatly affect how balancing books and budgeting might change in the future. The world of finances and financial security could look vastly different for tomorrow’s small business.
Ivana Taylor and Iva Ignjatovic are ready and anxious about what awaits them. Each manages her own business and has been shaken in the past by fiscal lurches.
Taylor owns DIYMarketers, “committed to helping small business owners get out of overwhelm.” Ignjatovic is a marketing, strategy and business consultant.
Typically, owners invest their money into marketing, equipment, inventory or other areas. If a business is based on commissions, funds go more to personal expenses.
Overall, Zippia has found that 39 percent of small-business owners finance their companies with cash.
Budgets work best with assured income flow, which is pretty much the opposite of generating leads and relying on referrals.
Taylor does not have an annual budget but follows budgeting guidelines.
A DIYMarketers article examines smart ways to spend your marketing budget.
Ignjatovic also dispenses with having a budget.
“My business is really small,” she said. “I keep track of the finances in general.”
Irregular spending can be a stumbling block for businesses that cannot keep such fluctuations under control.
“I review my credit card spending — which is how all business expenses are paid — every month,” Taylor said. “I make sure I cut what I’m not using.”
According to ELFA leasing and financing, almost eight in 10 U.S. companies use some form of financing when acquiring new equipment. Banks were the primary lender for 43 percent of equipment financing deals.
Improving Forecasts
“I note all spending that is not regular,” Ignjatovic said. “I predict their potential occurrence in the coming months. That improves my financial planning.
“I don’t use credit cards at all — cash only,” she said. “What I have, that’s it. I know my balance. I don’t need anything else. However, most people where I am must use cards because that’s the only way to survive through the month.”
Online payments — actually automatic bank account withdrawals — are mandatory after financial accounts are set up. The only need to follow up is for regular reviews or after notices of insufficient funds.
“I get most of my payments online,” Taylor said. “I think it’s easiest for my clients.”
Individuals and businesses alike can take charge of their money through a few easy steps. The hardest part is getting into the right frame of mind.
“Everything happens online,” Ignjatovic said. “All my payments are digital.”
If a small business is smart, it has a separate savings account to draw from as needed during fallow times. Owners also need to remember the great recession when non-guaranteed accounts dropped 40 percent in value overnight.
“We really learned that during the pandemic,” Taylor said. “I had to pull from an investment account for that exact reason and borrow from myself.
“I’m a big believer in diversification — line of credit from the bank, savings account, investment accounts, even crypto accounts,” she said. “I’m like a squirrel — stashing cash all over.”
Ready for Bad Weather
Rainy day funds are for storms that entrepreneurs hope never come.
“I have a line of credit for my business that I do my best not to use,” Taylor said. “I keep $20,000 in my bank, which came in handy when there was a disruption.”
Semrush has found that 66 percent of small businesses face financial challenges, with 43 percent claiming the most prominent challenge is paying operating expenses.
“That’s why I don’t have a strict budget, but I do have a financial back up,” Ignjatovic said. “It’s a ‘stash’ I do not touch unless really really necessary.”
Portions of business income should be designated for retirement while still allocating funds to live comfortably in the present moment.
Investments are geared toward retirement. A big rule is pay yourself first. Treat yourself like any other bill that must be paid each month. It’s an example of doing whatever it takes to be disciplined about money.
“This is just like that Profit First philosophy,” Taylor said. “It’s funny that we pay ourselves first as ‘consumers,’ but as business owners we pay bills first. But now I think a lot of people pay themselves first.
“I am always ready to scale business way back,” she said. “Thankfully, we’ve owned our home since 2008, so at least we have a roof and can sell and scale back if we have to.”
DIYMarketers explains in an article how to increase sales on a tight budget.
Rethinking Retirement
“I have a savings goal,” Ignjatovic said. “No, I don’t always live comfortably. Anyway, I always leave something. As for retirement, that is an obsolete concept. I plan some investments but not in the next two years.
“Retirement in a traditional sense is going away,” she said. “I really can’t see myself ever retiring. Perhaps that’s just me, but I don’t see retirement in the future as a concept.”
Another article backs up Ignjatovic’s notion that the definition of retirement is outdated.
If you have an assured, steady income, you can plan a budget. If your business depends on the success of your next phone call, a budget is not as feasible.
Taylor reviews her spending monthly and quarterly, using that to influence future budgets.
In fact, a Clutch survey found that half of small businesses did not have a documented budget in 2020. The smallest businesses are the least likely to have a budget.
“Before the pandemic I was able to make a yearly budget,” Ignjatovic said. “Now, I make that a monthly thing. My situation is fluid. This approach is flexible and less stressful.”
Traditionally, companies use five-year business plans to determine their goals and strategies. That is not necessarily the case for smaller businesses.
“Five years is just too long for budgeting,” Taylor said. “I prefer no longer than two years. Having just lived through a major disruption, it will take some time to regroup for another one so soon after.”
Improving credit will ease strains on budgets. There are ways to apply on-time utility payments toward better credit scores.
“It’s one thing to have a business idea five years ahead, but budgeting is a different thing,” Ignjatovic said.
Small-Company Advantages
The ways budgets are designed can produce pluses and minuses for large and small businesses.
“Smaller businesses have an advantage,” Taylor said. “Solopreneurs can be more flexible with budgets because they are the decision makers. Small-business owners certainly know how to think creatively. We saw that during the pandemic.
“I do most things online — especially Quickbooks,” she said. “My downloaded Quickbooks had a hiccup and I lost everything. That’s when I went online.”
From personal experience and working with clients, Ignjatovic also favors small businesses.
“They have the upper hand when it comes to budgeting,” she said. “They are more flexible, have less bureaucracy and can act faster than big businesses.”
Balancing the books and budgeting might change in future with advances in technology. For example, artificial intelligence will play larger roles in online accounting systems.
“AI is already at work, helping to classify transactions,” Taylor said. ”Technology will make budgeting more automatic. I’ve had so many bad experiences with local drives and computers. I’ve been in the cloud since the early 2000s.”
Technology overall has long since passed the novelty stage.
“Online transactions are becoming the norm,” Ignjatovic said. “Tech will help businesses with security and data storage. The same goes with budgets and finances, cloud and automation.
“However, anything that I find important is not on the cloud,” she said. “I’ve seen suspicious things, and I’m kind of cybersecurity obsessed.”
About the Author
Jim Katzaman is a manager at Largo Financial Services and worked in public affairs for the Air Force and federal government. You can connect with him on Twitter, Facebook and LinkedIn.
Disclaimer
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
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James L Katzaman
Jim Katzaman is a charter member of the Tealfeed Creators' program, focusing on marketing and its benefits for companies and consumers. Connect with him on Twitter, Facebook and LinkedIn as well as subscribing here on Tealfeed.
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