Small Businesses Have Their Sights Set on Financial Recovery [+Top 3 Pieces of Advice for a Financially Secure 2022]

Small Businesses Have Their Sights Set on Financial Recovery [+Top 3 Pieces of Advice for a Financially Secure 2022]

The last 16 months have seen small businesses across the country put through the wringer. A global pandemic, the resulting recession and drastic changes in the way people consume goods and services have all left their mark on the small business landscape. We asked Incfile customers to share how their financial situation has evolved in the last year or two (whether impacted by the pandemic or not), what their current status is and how they're preparing for the future.

The results show that small businesses are (as we've always known) tenacious and adaptable, even in the face of overwhelming uncertainty. Here's what we learned about the state of small business finance in 2021.

INCspiration | Incfile

Our Survey By the Numbers

We polled current Incfile customers and received responses from 740 small business owners. Overwhelmingly, these businesses are small operations, with more than 97 percent coming in under 10 employees. Industries varied, though ecommerce, consulting and real estate were at the top of the list.

The State of Small Businesses and Finance in 2021

Nearly 42 Percent of Small Businesses Say Their Sales Were Hit the Hardest by COVID-19

Stories of struggling small businesses were all-too-common, especially at the height of the pandemic. Our survey results reinforce the damage that was done to businesses by nationwide shut-downs and stay-at-home orders. The vast majority say that their sales bore the brunt of the impact. However, more than a quarter responded that meeting customer demand and keeping up with supply was their biggest challenge. More than 17 percent say production issues created the biggest obstacle, while just over 14 percent struggled most with employees and labor.

small-business-owners-financially-resilient

More Than 65 Percent of Small Businesses Experienced a Loss in 2020

The numbers indicated a more significant loss than national averages among non-minority-owned small businesses, with the largest percentage saying they experienced a 10–30 percent loss. On the positive side, around 34 percent say they experienced growth, in spite of the pandemic, with close to 24 percent saying their business has grown by 30–50 percent.

37 Percent of Small Business Owners Are Struggling with Cash Flow

But they're working to fix it. More than 41 percent say they're taking steps to return to being cash flow positive, while nearly 37 percent report they are currently cash-flow negative. Another 11 percent say that analyzing cash flow is one of their biggest challenges. Just shy of 12 percent indicate their business is cash flow positive and they have an adequate amount of money in the bank at this time.

Around 47 Percent Are Still Identifying Changes to Their Revenue Model and 29 Percent Don't Have One

For those impacted by the pandemic, recovery is top of mind for most business owners. But even for those that remain unaffected, many are still evaluating the changes they need to make to recoup their 2020 losses or continue being cash flow positive. Nearly 29 percent don't yet have a revenue model in place. Less than 10 percent report that their business is doing so well they don't currently need to make changes.

Cutting Costs and Starting New Revenue Streams Are Among the Most Frequent Changes to Small Businesses

As we said, we already knew that small business owners are a determined lot, and our survey results bear that out. Respondents listed the biggest changes they made in the last year outside of revenue models, with many reporting they actually started a new business to keep bringing income home. Other changes include:

  • Increasing marketing
  • Reducing expenses
  • Shifting to online sales
  • Updating service prices
  • Seeking professional education and training
  • Offering more/different services

woman working at desk writing on a notepad

Looking Ahead: How Small Businesses Will Handle Financial and Tax Planning Next Year

Just One-Quarter of Small Businesses Report No Change to Their Annual Tax Planning

The remaining business owners say that their tax planning is impacted at varying degrees. More than 36 percent say the current economic situation has caused them to become more serious about accounting, taxes and financial planning. More than 25 percent are exploring new accounting and bookkeeping tools, while 24 percent know they need help with annual financial planning but haven't yet taken those steps. Only 25 percent say that nothing regarding their taxes or financial planning has changed.

More Than 35 Percent Say Keeping Accurate Records Is Most Important to Successful Future Planning

Of the challenges listed, another 23 percent say that cutting costs is their starting place for financial planning in 2021. Just over 21 percent say they're looking first at acquiring additional funding, while 20 percent say they're operating in the moment, leaping over hurdles as they arise. If you need help facing these challenges, Incfile's accounting services can give you the support you need to overcome obstacles and keep your finances in order.

Nearly 50 Percent of Small Businesses Forgo Using a Tax, Accounting or Bookkeeping Tool or Service

While nearly 40 percent of respondents say they do have a tool or service to manage finances, most do not. Twenty-nine percent either do it themselves or rely on friends or family for help, while another 20 percent are still in the exploration stage but haven't adopted a specific tool simply because they haven't found the one. Just 3 percent indicate they already have a financial team or staff member in place to take care of accounting responsibilities.

Among those not using a specific financial planning or accounting tool, the most popular choice for taxes and planning is DIY, with many saying they track financial activities and expenditures in a spreadsheet, keek receipts or use their business credit account to keep an eye on finances.

65 Percent of Small Business Owners Use Government Sources to Stay on Top of Current Tax Information

They indicate that they seek out updates from the Small Business Administration and the IRS, visiting the organizations' websites to find the latest information. Seventeen percent say the information they receive comes in newsletter format from similar organizations and websites. Close to 10 percent get their information from business blogs, while just under 9 percent find their tax updates via social media.

A Surprising 39 Percent Do Not Know All the Tax Benefits Available to Them, While Some Discovered Them Too Late

When asked about untapped tax benefits, a surprising 39 percent say they don't know what those are. Twenty-three percent actively searched for pandemic-related tax breaks but couldn't find any, while another 22 percent exhausted all the options available to them. More than 16 percent report finding untapped tax breaks for which they may have been eligible, but discovered them too late.

man sitting on chair writing in notebook

Planning Ahead: Budgeting and Forecasting for Small Businesses in 2021 and Beyond

55 Percent of Small Business Owners Have No Budgeting or Forecasting Process

It's a surprisingly large number, especially considering the tumult of the last 16 months, but a strong majority of respondents say they do not have a process for budgeting or forecasting. As for the rest, 17 percent do quarterly budgeting and forecasting, while 16 percent do it every month. Close to 12 percent say they're preparing to add a budgeting or forecasting process and will launch that in the next quarter or within the next year. If you need some guidance, check out 2021 forecasts for small businesses in a post-pandemic world.

Just 17 Percent of Small Business Owners Believe the Government Is Doing an Adequate Job of Supporting Them Through Financial Hardship

While many small business owners sought support from the federal government to get them through an unprecedented time of recession and business decline, not many believe the help was adequate to see them through. Close to 40 percent indicate they felt that the government didn't always anticipate the actual needs of small business owners in order to respond appropriately. Thirty-five percent simply told us, "No comment." And 30 percent think the government just didn't do enough to protect small businesses during the pandemic.

Small Business Owners Have Numerous Concerns About Future Economic Downturn

When asked to select all the worries they have over unknown circumstances that lead to financial hardship, a majority of respondents say that all of the options listed are concerning to them. The biggest worry, with more than 37 percent of the responses, is having the necessary resources to weather a financial storm. Thirty-three percent are most concerned with meeting continued demand during tough times, and 23 percent are worried about receiving financial aid in time or at all. A little over 9 percent are concerned that they will over- or under-produce before a looming recession. Less than 7 percent say they aren't concerned about any of the scenarios listed.

Planning, Preparedness and Saving Are Among the Top Pieces of Advice from Business Owners

In their own words, respondents offered words of wisdom to fellow business owners concerned about post-pandemic finances and unexpected future downturns. Overwhelmingly, the advice was very similar: have cash in the bank, be ready for anything and get organized before a crisis hits.

The last 16 months have no doubt turned many small businesses in the U.S. upside down, but as we see, business owners continue to persevere. Many are learning the importance of financial planning and preparedness, and though many do not yet have processes in place, they are overall on a path to implement tools and methods to ensure they're ready for the unexpected. For now, their sights are set on recovery for the rest of 2021 and beyond.

INCspiration | Incfile

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