Achieving Financial Sustainability: Essential Strategies for Small Business Owners in 2024

Achieving Financial Sustainability: Essential Strategies for Small Business Owners in 2024

Achieving Financial Sustainability: Essential Strategies for Small Business Owners in 2024

If you want your business to provide you with a solid income for as long as you choose to keep it open, it will have to be financially sustainable. With so many uncertainties in business, how do you get it there?

Here, experts and business owners share financially sustainable practices that have worked for their businesses and others. 

What Is Financial Sustainability?

At its core, a financially sustainable business is one that makes enough income to make a profit after expenses, and provides a healthy income and/or ROI to the owner and other stakeholders, like employees or shareholders.

But if you think that financial sustainability is something you’ll “know when you see it,” you may be missing out on opportunities to consciously create it sooner in your business. 

Financial sustainability always is top of mind for Belinda Rosenblum, CPA and CEO of Own Your Money. She helps female entrepreneurs “escape reactive bank balance decision-making” and learn how to manage and plan their business money so they take control of their profits and earn more. Her clients come to her to help them create financially sustainable businesses, and her own business must be sustainable to serve them. 

She defines small business sustainability this way: 

“Small businesses achieve financial sustainability when they can consistently create enough revenue to cover expenses and their profit goals, including adequate compensation to the owner of the small business.” For this to work, business leadership needs “to understand the financials of the business and create strategic growth plans for the future.” 

Katherine Pomerantz, accountant and money coach goes even further and defines financial sustainability as “a business with smart leadership, market understanding, and the financial management skills they need to successfully pivot if demand for their current product disappeared overnight.” 

Think of the businesses that made it through the past few years of tumultuous business change. Those that flourished often moved quickly in reaction to market changes. 

Building a Solid Financial Plan

“The number one practice that can help a small business be sustainable is creating and then regularly updating an annual income and spending plan,” insists Mikelann Valterra, a money coach, Accredited Financial Counselor, and author of the new book Rise Above the Money Fog—The key to confidence, clarity, and control over your life.

“But the real key,” she says, “lies in also creating and staying in touch with a personal annual spending plan.” As a business owner, you need to know what you need and spend in your personal life, so you know how much your business needs to pay you for the year.

She encourages individuals and business owners to create an annual spending plan. When you do, you’ll be able to answer three questions: 

  1. What can we afford? 
  2. How much is enough? 
  3. What’s possible?

“These questions must be answered in an owner’s personal life first, and then the answers inform the business,” Valterra says. “Once an owner knows how much is enough, for example, draw and salaries can be set in the business.” 

“When a business owner can answer the question, ‘What can we afford?’ they know what they can afford to invest in and what is too expensive.”

Financial Health Checkup

How is your business doing financially on a daily, weekly or monthly basis? If you don’t know, a financial health checkup is in order. 

“Most people only look to see if revenue is exceeding expenses, but that’s not really a financial checkup,” warns Pomerantz. “For a business to feel financially sustainable, my team would first help the business owner understand their cash flow forecast by month, their break even point, and their most profitable customer types and products. 

“These are real metrics a business can measure itself against, which can then help the owner map out when and how to save, invest, or spend their profit in ways that truly sustain their future.”

The New Year is a great time for a financial checkup, but it shouldn’t be a one and done activity. By keeping your numbers up to date and reviewing them throughout the year, you can spot changes in your business and act accordingly. 

“Every financial checkup should involve two things,” suggests Valterra. “First is updating the annual spending plan and making sure it is re-balanced for the year – is the remaining spending in line with the remaining income or are adjustments needed? 

“And second, the net worth should be updated—what is the current balance on all savings, investment, and debt accounts?” 

Creating an annual spending plan and tracking against it on a regular basis will keep your finances front and center throughout the year.  

Cash Flow Management

Cash flow consistently comes up as a hurdle for small business owners. For example, in Nav’s Business Banking Study, sixty-percent of those who considered closing their business cited cash flow issues as the main reason they considered closing. 

Cash flow management typically involves three basic steps:

1. Monitor business cash flow

Set up a system to track business cash flow so you can spot trends. Do you have regular cash flow shortfalls? Are there seasonal fluctuations? Is cash flow improving or declining? 

2. Examine expenses

Jordan Power, President of Grey Smoke Media, an elite marketing agency for law firms, suggests several ways to improve cash flow. “Brainstorm with your team. Where can you cut expenses? Reward employees who find cash savings. Plan for emergencies.” 

Some expenses are absolutely necessary, some are optional, and some are negotiable. Looking at each one through that lens can help you decide where adjustments can be made.

Just be careful not to cut in the wrong areas. 

Valterra warned that businesses often overspend on marketing and then underspend, because they cannot see the big picture. 

“In the past, we underspent on sales,” Power notes. “Without sales, a business is like a car with an empty fuel tank. Too many business owners think too far ahead. You should plan for this month while also planning for a year from now.”

3. Create predictable revenue 

If your income fluctuates, so will cash flow. In addition to reviewing your expenses, examine your business model to look for ways to create more predictable income. If you sell products, can you add subscriptions that automatically ship at the customer’s preferred times? If your business is B2B, is there a product or service you can turn into recurring revenue? How do you improve customer retention?

Be thoughtful throughout this process. 

“To create a financially sustainable business, you can’t keep ‘winging’ it with your business money,” Rosenblum cautions. Avoid “making important decisions as to what your business can afford based on your moment-to-moment bank balances.”

Revenue and Income Diversification

Every business owner wants to make money. But sometimes they equate revenue with financial success. The two are not always the same. 

A common trap is equating income or revenue with profit, warns Power. “This is a grave error.” He says a business needs to show consistent growth in profit and the ability to scale. “True sustainability also involves excellent cash flow management and risk management, especially in these volatile times and long term planning which includes a budget for training and technological upgrades.”

“Challenge yourself to simply sell more,” says email marketing expert Allison Hardy. “It doesn’t have to be complicated, or a high pressure situation. If you know you can help someone through a program or an offer, simply tell them about it and make the invitation. Most of the time, you’ll find folks actually thanking you for pitching them.”

Rather than trying to find new customers, try to increase the lifetime value of your current customers, encourages Pomerantz. This can include “getting them to buy from you more often and for many years and at increasing price points,” she suggests. 

Don’t forget about your own needs as a small business owner, warns Rosenblum. 

“The owner’s compensation and lifestyle are important to consider because the small business owner needs to get paid and needs to be able to sustain the hours worked,” she warns. “The business can lose its financial sustainability if the owner becomes a volunteer in an unintentional non-profit, as he/she needs the compensation from the business to pay their own personal bills, and will not want to continue the business if they are working so hard that they are burning out and literally can’t keep up with the workload.”

Debt Management Essentials

Many businesses use small business loans and financing at various times. When used strategically, debt can help a  business handle cash flow shortfalls or invest in growing the business. Not many business owners would want to pay cash for a laundromat, for example, or commercial real estate. 

And some startups may find it useful to use 0% APR business credit cards for initial expenses until the business generates enough cash to cover those expenses. 

While Rosenblum first encourages business owners to turn to reserves when cash flow is inconsistent, she realizes there are times when they may need to borrow. “If reserves are not available, debt can be used to handle lower income times.” 

But she emphasizes that it is crucial to pay attention to “paying off the debt, not just maintaining the debt once it has been created.”

That’s key. As a business owner you need to understand how debt impacts your profitability and other financial metrics, and have a clear plan for paying it back. 

Read: Embracing Debt for Business Growth: Insights from Successful Entrepreneurs 

Investing in Your Business

There are numerous ways to invest in your business, from improving marketing to creating an environmental sustainability plan.

Power says he focuses on his employees.

“Human capital is king,” he explains. “Individuals want to feel as if they’re part of something that is growing on the balance sheet and allows them sufficient upward mobility. I’ve had long conversations with my employees about what they want out of the business and life. Then, I’ve worked with them every quarter to make sure they are heard and that their personal goals are being met.”

One of the ways he invests in his employees is by offering equity options. “Over the past three years we have seen a 3x in profitability as output has increased dramatically. All of my employees have an interest in the future of the business. They are not workers. They are team members. There is a dramatic difference.”

Establishing business credit can also be an investment in your business. Strong business credit can make it easier to qualify for certain types of financing, and may help your business establish partnerships with other businesses, including suppliers. 

If you’re continually putting out fires in your business, you probably won’t have time to think ahead. 

That’s another reason why creating a financially sustainable business can pay off multiple times. You can spend time on the often elusive goal of working “on” your business and not just “in” your business. 

Success Stories in Financial Sustainability

Allison Hardy helps coaches and experts enroll new clients into their courses or memberships, on autopilot, through email marketing. She took a simple step to improve the financial sustainability business. 

She decided to sell more.

“In 2023 I made the promise to myself that I would invite my email list, podcast listeners, and Instagram followers to buy my offers 2X more than what I did in 2022. No complicated launches or sales strategies. Simple invitations to buy my offer(s). By July 2023, I had more transactions than I did in all of 2022.”

Rosenblum also took several steps to ensure steady cash flow for her business, all of which involved adding memberships to supplement inconsistent income from coaching, speaking, and online courses. 

She added a personal finance membership to help women and couples take control of their money, pay off their debt, and kickstart their savings. 

She also elevated her Cash Flow CEO five week online program for small business owners to become a high-touch and higher-ticket extended four month Accelerator program. “This provided us with higher and more consistent income over four months instead of needing to keep enrolling into the shorter program,” she explains.  

Finally, she created the Cash Flow CEO Academy, which she describes as a ‘back-end’ membership following the CFCEO Accelerator program, so students have follow-on implementation support and accountability. 

“These memberships provide a win-win as it provides our students with the needed ongoing direction and us with more consistent revenue.”

Pomerantz shares the story of a client who leads a successful consulting firm, but struggled with cash flow. 

“She is an excellent negotiator and demands high prices for their services; however, she is also a generous leader and her payroll costs are very high,” she says. She found her business falling behind on taxes, profit shares, bonuses, or sales commissions. She also often had to forgo her own salary to pay those expenses. Employee turnover was high as a result. 

Pomerantz’s team was brought in to create more sustainable business practices.

 “We first helped the owner identify which late payments were costing her the most fees, penalties, and administrative costs. We then opened more bank accounts and created sinking funds for each expense like payroll and taxes, so these large expenses would be met on time,” she explains. 

The business started charging late fees to clients who paid slowly, and a dedicated accounts receivable team went after overdue invoices with outstanding results. “They collected $100,000 in overdue invoices that first month and reduced bad debts from $140,000 the previous year to just $14,000 at year end.” 

Working with the business owner, her team created a cashflow forecast and identified the monthly break even point. “This helped her prioritize and increase her sales efforts to ensure each month they had enough revenue, and allowed her to develop new financial management skills, increase profitability, and time future purchases so that within a year all expenses were being paid on time,” Pomerantz says. 

Another example she shared is that of a client whose retail boutique sales plummeted during the pandemic. Though it was a scary time, it was also an “opportunity for her to build a more sustainable – and more enjoyable – business”, Pomerantz explains. “We identified the parts of her business she did not enjoy, like managing large teams and a warehouse of inventory, and eliminated the need for these processes entirely.”

She closed her retail location, moved her business online and managed inventory from home. While overall revenue dropped by about 30%, cost savings were significant. “She gave herself an immediate raise of $1000 a month, paid off $50,000 in credit card debt within the year, and still stays home with her kids full-time. She has a more profitable business and one that provides her a lot more of the lifestyle she truly desired.”

Where To Start

Here’s how to get started creating a financially sustainable business.

Know your numbers

Set up accounting software and keep your bookkeeping up to date, or use a business budgeting app to create a living budget for your business. 

Monitor your cash flow

Pay attention to your business finances so you can be proactive rather than reactive.

Plan ahead 

Next, use this information to make strategic decisions. If you’re not comfortable going it alone, talk to your accountant, financial advisor, business coach or business mentor. Don’t feel like you have to go it alone. 

How Nav Can Help

Nav offers one simple solution to strengthen your business’s financial health profile. Actively improve what matters to lenders to ensure your business always has access to the best financing options.

Get detailed insights son your business through Detailed Credit Reports with tradeline reporting that can grow your business credit and improve your financial health profile

This article was originally written on January 3, 2024 and updated on January 4, 2024.

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