How small business owners can prepare and protect their finances in 2023

Inflation and looming recession worries are only a handful of concerns small business owners have going into the new year.

Elizabeth Gore, co-founder of small business financing resource platform Hello Alice, said local business owners are worried about the unknown, including such unforeseen disasters as wildfires and floods, but also optimistic after a strong holiday shopping season.

“Small business owners do better when they know there’s a full crisis so they can plan for it,” she said.

“Receipts were really high for holiday shopping, and we’re seeing people convert over to software to strengthen their spending and operating value so there’s so many new businesses going in, which is super exciting.”

Rob Eyler, a Sonoma State University economics professor, said two things small business owners are most concerned about are increasing worker wages and rising prices on goods and raw materials.

“(Wage increases) make you rethink about how many people you should hire, so that’s usually priority No. 1 one for small businesses,” Eyler said. “So if there’s wage increases that you can’t really control, how does that change your ability to profit?”

Here are some ways small business owners can prepare and protect their finances in the upcoming year.

Continue to eye interest rates, cash flow and current debt

Eyler said business owners who have debt should talk with their lenders to try and restructure the money they’re borrowing to make operating with them more affordable.

“Try to assess current cash and current debt and what that means in terms of your ability to make it through this really tough time,” he said.

Interest rates have been rising steadily since last year, and Gore said business owners should look at the interest rates on current credit cards and loans to make sure they aren’t too high.

“I’m a huge fan of local banks in Sonoma County. I think we’re very blessed to have banks that are owned and run by the citizens who actually live in the county,” she said.

“If you have a national bank you’re working with and have a high interest rate or the bank isn’t providing the products you need, walk into a Summit Bank or Redwood Credit Union or some of our local banks.”

Run an expense audit

Gore said small business owners should look at every core expense and evaluate whether it’s worth the cost or if that money can go to another area of the business, such as software upgrades.

“Sometimes people shy away from a software spin when actually it might save you a significant amount of time and money,” she said.

“People (who) have been in business a long time tend to forget about something that’s paid monthly, particularly if it’s been in the books, so doing an expense audit could really surprise a lot of people.”

Eyler said business owners should also determine whether or not they can afford to bring on more workers as wages and cost of operations have gone up.

Diversify capital and planning ahead

Gore suggested that looking through local government websites and small business administration could reveal money in the form of grants or loans that small business owners could look out for.

“You do need to dig into those .gov websites,” she said. “There’s money sitting there that we just don’t know about.”

She also suggested considering a line of credit and looking into business insurance in case of emergencies, such as damage caused by wildfire or flood. She said even just taking 30 minutes to research can make a difference.

“We live in a disaster-prone environment,” Gore said. “I’m happy to see more small business owners getting insurance because previous to the fires, the majority did not have that so I encourage folks living in this area to make sure you have good insurance.”

Evaluate your current financial landscape

Gore and Eyler stressed evaluating the current interest rates and what those look like for the business between now and a few years down the line.

Gore said business owners should also be careful not to overcapitalize because of the high interest rates.

“Read the fine print on anything that you’re applying for like loans or credit,” she said. “Do things in phases and stages, so if you’re hoping to have a 50-person business in two years, don’t hire 50 people right now.”

Listen to customers

The most valuable place where money comes from is customers and clients. Gore said business owners should listen to suggestions that come from them, whether they’re asking for or continuing to purchase the same product or service.

“I keep encouraging people right now to really talk and listen to their customers because that’s where your hot cash flow is going to come from,” she said.

Stay connected with local officials

Gore also stressed staying connected to local officials and organizations where business owners can get credit like local banks or the Small Business Administration office.

“I think we tend to go to those places when there’s an emergency when, in fact, if you develop those relationships, I think it’d be a huge asset before you need it,” she said.

You can reach Staff Writer Sara Edwards at 707-521-5487 or sara.edwards@pressdemocrat. com. On Twitter @sedwards380.