October is Small Business Month, a time to recognize and celebrate the contribution of small businesses to our provincial and local economies. According to BC Stats, small businesses make up 98 per cent of all businesses in the province. There were approximately 395,900 small businesses operating in B.C. in 2009, and these employed more than one million British Columbians. That’s more than 20 percent of our population.
But, for those of you out there running a small business, you know that it’s not all glory and profit. Indeed, small business owners face myriad challenges in today’s fluctuating markets, not the least of them financial. Aside from hiring and retaining employees, attracting and keeping clients and finding time for a vacation, small business owners have to balance the books and plan for the future – all while turning a profit.
Whether you’re one of the thousands of small business owners in B.C. or are planning to start a business of your own, the following tips will help you build and maintain a secure financial foundation for your work.
Borrow without sorrow
According to Statistics Canada, 76 per cent of small business owners in B.C. financed their business with personal savings. But as needs increase, most entrepreneurs will require an additional capital source to fund growth and expansion. Any borrowing you do comes with interest so be careful to chose your loan product carefully. For example, a business line of credit usually comes with a lower interest rate than a credit card. If you need to use a credit card for the convenience, choose a business credit card with a rate you can live with and a cash back feature for the purchases you make. Overdraft protection is also a good idea. Talk to different financial institutions and compare rates, to help you pick the best products.
Don’t let your cash flow become a cash drain
Not all business chequing accounts are created equal and the fees you pay for deposits and withdrawals can vary widely. Particularly for those with businesses that record high volumes of transactions, these fees can mount up quickly. Not all fees are transactional fees either — there can be additional fees for volumes of cash, coin and cheques. Look for ways to save by comparing different accounts and choosing one that will be less of a cash drain.
Avoid a Cadillac merchant account if a Jeep will do
Most retail businesses today offer point of sale payment options given that a large number of customers prefer to make purchases with their debit or credit cards instead of cash. This is great for cash management and record keeping as well. However, be sure that the merchant account service you select fits your needs in terms of services provided and fees. Don’t go for a Cadillac when a Jeep will do just fine. If your transactions are not that high, a volume-based payment plan could result in savings. Do some research and discuss your options with your financial institution.
Protect your empire (and it doesn’t have to be at a royal cost)
Okay, maybe it’s not quite a business empire (yet), but it’s important for you to protect your business assets. No one expects the unthinkable to happen, but it’s always better to think ahead and be prepared. Types of coverage for businesses include property insurance, which covers against water damage, theft and fire, as well as crime insurance, which is highly recommended if you deal with high volumes of cash on site. Liability insurance protects your business from legal actions arising from incidents such as a customer slipping and falling in your store. Also, working for a company usually provides coverage under a group benefits plan, but as a small business owner, you’ll have to make these arrangements yourself and your family through life, disability and critical illness insurance, for example. Again, compare plans and costs and choose one that is right for you and your business.
Save separately for your business and your trip to Acapulco
If you are a sole proprietor, the line between your personal finances and that of your business can get blurry. However, it’s best that small business owners separate their personal savings from their business savings. This will make it easier to plan for and set funds aside for anticipated business needs, whether it’s office supplies or bulldozers. Look for an account that offers free unlimited deposits and a good rate of return. I recommend setting up an automatic transfer of a predetermined amount from your business chequing into your business savings account each month. A long-term savings plan will allow you to borrow less and provide a financial buffer for your business.
To all our hardworking small business owners, all the best – we salute your contributions to British Columbia this Small Business Month!
Kathy McGarrigle is Chief Operating Officer for Coast Capital Savings.