Running a small business is hard work; sometimes, it can feel like the sucker’s choice; why would you take on all this risk, do all this unpaid or extra work in the hope that there is a potentially bigger payoff sometime in the future. When you become an entrepreneur, you take your time, capital and energy, and you make a single bet that there is no second best.
You forgo the safety of a salary in the hope that you can either capture a share of a market or you’re going to create a brand new market where you will service customers and generate cash flow. Most of the time, this bet doesn’t pay off, with the vast majority of businesses failing, yet it doesn’t deter the next round of entrepreneurs to try and try again.
As a business owner, there are many challenges to overcome, not only from direct competition but several uncontrollable variables. This can come in the form of government policy, regulation, exchange rates, interest rates, retaining employees, and all the while ensuring expenses remain low and margins remain large enough to service those expenses and etch out a little profit to provide a buffer for a rainy day.
In addition to these challenges, small businesses also face competition from larger businesses, supply chains, and changing customer demands. However, despite all of these challenges, there are many reasons to start a small business. Small businesses are often more agile and adaptable than larger businesses, and they can offer a more personalised customer experience.
If you’re thinking about starting a small business, it’s important to be aware of the challenges that you’ll face. However, if you’re dedicated and persistent, you can overcome these challenges and build a successful business.
The financial burden on small businesses.
While you’re operating your business and trying to service the market needs, you are also responsible for managing working capital, paying taxes and other expenses, and dealing with inflation.
Managing working capital is one of the biggest challenges of running a small business. This is the money that your business needs to operate on a day-to-day basis. If you don’t have enough working capital, you may be unable to pay your bills, meet your obligations, or maintain a profit.
Taxes are another major expense for small businesses. The taxes you owe will depend on the type of business you operate, your income, and your expenses. Taxes can significantly burden small businesses, especially if you’re unfamiliar with the tax code.
Then there’s the challenge of dealing with the hidden tax of inflation. Inflation is the rate at which prices increase over time. When inflation is high, it can make it more difficult for small businesses to keep their costs under control.
This can lead to lower profits or even losses.
As a small business owner myself, I know the ups and downs. It’s either feast or famine and to smooth things out, you need savings to cover shortfalls and guard against uncertainty. Your business’s ability to store capital long-term allows you to weather some of the challenges mentioned earlier.
Small businesses are devoid of savings.
A business savings account is used to store funds to have cash reserves that can be useful for the future stability of a business. It’s a great add-on to your business account holdings because it’s designed specifically for businesses and built around your short-and long-term needs and access requirements. In business, as in life, you never know what’s around the corner. Having savings provides financial cushioning and can bolster your balance sheet to propel your business forward.
Here’s how a business savings account can benefit your business:
- It creates a buffer against the unexpected.
Savings can help you deal with and respond effectively to everything from changing market conditions to emergencies. Most businesses will experience dry seasons, complex economies and unforeseen events at some point, but having liquid assets means certainty in keeping up with business expenses without taking on more debt.
- It makes hard-earned money work harder.
Putting your money in a business savings or investment account gives it the advantage of earning interest and generating income that can be used to improve your overall cash flow management or grow your business’s financial security.
- It can accelerate your business growth.
Having extra cash on hand can help you reach your business goals faster and improve your profitability. Available funds can be used to invest back in the business or to position your company for strategic growth by equipping you to make bold moves when opportunities present themselves.
- It helps you pay for major purchases.
Whether you have planned future expenses or investments, need to replace equipment, make upgrades or have business taxes to cover, preparing for necessary expenditures by having money set aside can alleviate the financial impact and help move your business forward.
The perpetual attack on your savings.
There’s an obvious need for savings as a small business, but saving in cash simply isn’t practical, especially if you’re not using one of the relatively stable larger currencies like the US dollar. While small businesses in every part of the world face the wrath of inflation, businesses in certain countries, like those in the global south, are clearly facing a harder time saving or having the motivation to save.
Relentless inflation can be a major challenge for small business owners. As prices rise, the value of your savings erodes. This means you must spend more money to buy the same goods and services. In addition, inflation can make it more difficult to keep your costs under control, which can lead to lower profits or even losses.
For example, let’s say you have $10,000 in savings. If inflation is 5%, the value of your savings will decline to $9,500 in a year. This means that you would need to earn an additional $500 just to keep your savings level.
Inflation can be even more challenging if you’re a small business owner. This is because you may have to raise prices to offset the rising costs of goods and services. However, you may lose customers if you raise your prices too much while you also need to compensate your staff as they also deal with inflation personally.
There are a few things you can do to protect your savings from inflation. One is to invest your money in assets that are likely to appreciate in value, such as stocks or real estate. Another is to make sure that your business has a strong financial foundation. This means having enough working capital to cover your expenses and weathering economic downturns.
Inflation is a complex issue, but it’s important for small business owners to understand how it can affect their finances. By taking steps to protect your savings, you can help ensure the long-term success of your business.
Inflation drives business owners to misallocate capital.
If you’re sitting on a melting ice cube that punishes you the longer, you remain prudent; your natural intent would be to try and source the most value for your capital. Business owners can choose to spend it on the expansion of their operations in the hope that they can increase cash flow, which is a rational step, but it doesn’t mean that there is always a market to expand to or that it is the right time to expand.
In addition, over-extending yourself to service more customers or provide additional products can dilute the core value of your business and erode your existing customer base with poor products, services, and after-sales service. Local businesses usually find a natural equilibrium servicing their local community, but inflation forces them to expand to the point of incompetence and eventual failure.
Your next option is often the one you see on social media, and this is needless consumption, where business owners would extract the value sitting in their business to pay for travel, vehicles, and other items in an attempt to extract the capital, pay less or no taxes and enjoy some of that value. While there is a rational argument to be made for this needless consumption, it does encourage you to run your business as capital-light as possible and thus expose your future cash flows to unforeseen risks.
Unsurprisingly, many of these small business owners that opt for the consumption model to avoid inflation often end up closing their businesses at the slightest economic or supply chain hiccup, especially if they cannot afford to access cheap credit or other finance means.
Bitcoin as a buffer
So if you’re stuck operating within a fiat system with perverse incentives, your one option is to keep going and hope that you can continue to cover your costs and that everything will continue on at a manageable rate without any deviations from the norm.
Alternatively, you can seek out what is seen as an unconventional strategy for saving capital. I know what you’re thinking; how will one of the most volatile assets of the last decade help this situation we find ourselves in?
Taking a punt at deflation
First, no one is stating you need to convert your entire holding into Bitcoin, but rather a percentage you feel comfortable holding long term and do not wish to have those funds eroded by inflation. Since Bitcoin is a deflationary currency, the theory is that its value is likely to increase over time. This means that your Bitcoin savings could appreciate in value, which will not only beat inflation but provide you with the additional working capital you can put to work when needed.
Hedging political and currency risk
Second, Bitcoin is a borderless currency, meaning you can send and receive it anywhere in the world without worrying about exchange rates or transaction fees. This can be a major advantage for businesses that operate internationally or if you need to move your business due to political unrest, currency failure or worse, times of war. It’s also a possible hedge for businesses operating in countries that have relatively high inflation.
Hedging against custody and regulatory risk
Third, Bitcoin is a secure currency. Transactions on the Bitcoin network are verified by a computer network, making it very difficult to counterfeit or double-spend Bitcoin. This makes Bitcoin a good option for businesses that need to store their funds securely but do not wish to entrust a third party. This property comes in handy when you operate in a country where the institutions aren’t of the highest standard regarding reliability, custody and security.
Bitcoin backed treasury
Bitcoin can act as a refuge for your excess capital and help you avoid the need to try and grow at all costs or withdraw capital for needless consumption just so that you can source some value from your business. You can also use Bitcoin as a means of collateral to access capital in a more tax-efficient manner and even access cheaper capital than you otherwise would, borrowing in your local market.
Of course, there are also some risks associated with holding Bitcoin; it is not a silver bullet that will save every business. The price of Bitcoin is volatile, so the value of your savings could go down as well as up. Additionally, Bitcoin is a relatively new technology, so there is still some uncertainty about its long-term future.
Overall, the decision of whether or not to save in Bitcoin is a personal one that you will have to decide on yourself or with your shareholders. However, for businesses that are looking for a secure, borderless, and deflationary currency, Bitcoin could be an option for storing a portion of your operating capital.
Are you on a Bitcoin standard?
Have you been running a business and started accepting Bitcoin or moving part of your operating capital into Bitcoin? How has this worked out for you? What are the challenges you have faced?
Let us know in the comments below.