As the adage goes “it takes money to make money, ” and that is never truer than with small businesses. One of the most common challenges entrepreneurs face is how to get to the next stage of growth for their business. Often, these challenges come back to finances. If you don’t know what growth strategies to invest in, or lack funds needed to invest properly, the prospect of getting to the next stage can be daunting.

Your growth in the first five years of business is crucial to your success. According to the US Bureau of Labor Statistics, 20% of online businesses fail by the end of their first year in business. By the end of their fifth year, this rises to 50%, and by the tenth year, a staggering 80% of businesses have gone under.

It’s important to ensure you’re prepared for the financial aspects of running a business. Many of these challenges are easy to overcome as long as you understand what to expect and know how to handle when they occur.

The top 3 financial challenges affecting small business owners today include:

Rising Interest Rates

The hike to interest rates has had a big impact in the small business community. How that will directly impact small business owners is top of mind. In a recent survey, more than a fifth of small business owners cited rising interest rates as a top challenge for their business.

Rising interest rates make securing funding more difficult. Because cash management is already a challenge (see below) businesses fear they might not have access to the low-cost funds they need to invest in business growth.

When considering a small business loan and other forms of credit, it’s important to consider rates, terms and payback penalties. Stellar customer service to guide you through the loan process is also a big plus. If you’ve determined that extra funds can take you to the next level, make sure you can afford the loan you’re seeking for the life of the loan. Run all of the numbers so you’re aware of how fees and other costs add up.

Money Management

Money management is another common issue faced by many small business owners. Securing funds from a variety of sources, such as loans, lines of credit and credit cards are common methods of injecting cash into your business – but managing these properly can be a challenge.

You can avoid common pitfalls by ensuring you don’t mix personal and business expenses. This can cause headaches and audits during tax-time. It also doesn’t hurt to hire a reputable accountant or other financial professional to help guide you through managing your funds for future growth.

Where possible, consolidate sources of cash to avoid paying multiple interest rates and help keep everything in one place. For example, you can refinance existing debt with a low-cost SBA consolidation loan. This can drastically cut large (or frequent) payments and can save you thousands of dollars in the long run.

Timing of Cashflow

Almost every business owner experiences cashflow problems. Timing can get tricky, especially when emergencies arise. Use invoice software and budgeting systems to effectively predict upcoming cashflow and plan accordingly. If trends indicate that you may experience a cash shortage in the coming months, look at expenditures you can temporarily scale back on or consider a temporary infusion of cash through a small business lender.

For example, the holidays can be a tough time for many businesses because holiday campaigns, inventory purchases and staffing require a lot of upfront investment. However, these investments generally pay off of if you have a successful holiday season. To help manage your cash flow, consider things like temporary staffing or obtaining a small business loan that you can pay off after the holiday season.

While small business statistics can be frightening, knowing and preparing for success ahead of time can set you on the right track. Keep the above challenges and tips in mind as you manage your finances and prepare for the growth of your business. These first five years can be a rough, but ultimately rewarding, time for those armed with knowledge.

Suzanne Robertson is the Senior Marketing Content writer for SmartBiz Loans, an innovative, online company that makes applying for SBA loans fast and easy for small business owners. She is the writer/editor for the award-winning SmartBiz Small Business Blog that offers information specifically for the established small business owner. Suzanne lives in Los Angeles with her husband and two daughters. When not gulping coffee, she enjoys yoga, beach time and everything Disney.

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