Financial Management Challenges: 2023 Survey of Existing Small Business Owners
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LivePlan recently surveyed 160 small business owners to gain real-time insights into how they’re navigating today’s small business climate.
This piece focuses specifically on up-and-running businesses generating sales. Read our recent article focused on pre-revenue stage startups.
The big questions we wanted to answer were:
- Which aspects of their business were they feeling the most confident in?
- Which areas did they lack confidence in (and could benefit from processes like ongoing budgeting and forecasting)?
Survey Key Takeaways
📉 Cost Management Concerns: Only 59% of business owners feel equipped to pivot effectively in the face of escalating expenses.
📝 Inconsistent Planning Practices: Barely half of active businesses have consistent budgets and forecasts in place.
✨ Team Dynamics: Only 60% report a cohesive direction across all team members.
💡 Financial Forecasting Fears: 34% of entrepreneurs grapple with forecasting their future cash position, profits, and revenue goals.
🚧 Sales & Marketing Spend Uncertainty: Just 51% feel confident in allocating budgets for these crucial business functions.
🌐 Payroll Pressures: Only 43% feel fully confident in their ability to cover payroll without hiccups.
🛠 The Ever-Evolving Planning Process: Nearly 90% view business planning as an ongoing, dynamic endeavor.
Business Models & Classification
The post-revenue generating group represented a diverse mix of established small businesses.
Business Types
- 54% small business
- 32% solo business or solopreneur venture
- 12% startup
Business Models
- 55% service-providing business
- 10% manufacturing/production
- 12% e-commerce retail
- 4% brick-and-mortar retail.
The remaining 18% specified other business types like consulting and professional services.
Key Takeaways
- Compared to the pre-revenue cohort, this post-revenue group contained a higher percentage of small businesses—versus startups or solopreneurs.
- This post-revenue group had a higher share of services businesses and a lower share of product/retail businesses.
Assessing Post-Revenue Entrepreneurial Confidence in Financial Planning
Once revenue starts flowing in, small businesses enter a new management phase with their own set of financial planning priorities.
In this section, we examine the confidence levels of post-revenue entrepreneurs across key financial planning aspects. By categorizing their confidence into three distinct buckets – most, moderate, and least – we aim to shed light on areas of strength and potential gaps that need addressing.
This analysis provides a comprehensive view of where today’s post-revenue businesses stand in their financial planning journey and the challenges they face as they aim for further growth.
Where Up-and-Running Businesses Feel Most Confident
- Understanding Product Lines/Service-specific Profitability: 82% confidence
- Adjusting Prices for Profitability: 76% confidence
- Established Revenue Goals: 71% confidence
- Personal Compensation: 71% confidence
Key Takeaways
This heightened confidence likely stems from real-world experience:
- As a functioning business with established sales and revenue data, it makes sense that the owner has a solid understanding of the profitability of their product lines.
- Similarly, having run the business through various sales cycles, and adjusting along the way, there is ample market data and customer feedback to adjust from.
- With a larger track record of revenues and profits to track from, owners have a better understanding of what personal compensation the business can endure.
In summary:
- Post-revenue confidence is built through active management and seeing real data.
- But ongoing planning is essential to tackle future uncertainties.
Where Established Businesses are Split
As we move down the confidence curve, here is where small business owners felt moderately confident:
- Revenue and Profit Goals Monitoring: 69% confidence
- Business Cash Runway: 69% confidence
- Business Cash Position: 66% confidence
- Business Growth and Resource Allocation: 66% confidence
- Understanding Business Seasonality: 65% confidence
- Team Alignment on Business Direction: 60% confidence
- Protecting Business from Rising Costs: 60% confidence
Key Takeaways
- Cash/profitability: Future growth introduces unknowns, such as seasonality and planning for resource allocation.
- Direction: Internal alignment challenges as the team grows, underscoring the importance of clear communication and shared vision.
What Up-and-Running Business Are Most Concerned About
The next set of areas represents owner/operators’ areas of least confidence overall:
- Business Profit Monthly Visibility: 57% confidence
- Sales and Marketing Spend Forecasting: 51% confidence
- Planning for Employee Pay Increases: 49% confidence
- Payroll Coverage Confidence: 43% confidence
Let’s dive deeper into these areas, as this is where small business owners are experiencing the highest levels of uncertainty and need.
Business Profit Monthly Visibility
Forecasting future profits is a core aspect of forecasting, yet it’s a task many entrepreneurs find challenging.
Several factors can contribute to this uncertainty:
- Revenue Predictability: Some businesses, especially those in seasonal industries or reliant on a few large contracts, might experience fluctuating revenues that make profit forecasting more complex.
- Operational Costs: Growing businesses often encounter unexpected operational expenses, which can throw off profit projections.
- Market Dynamics: Unpredictable external factors like supply chain disruptions, regulatory changes, or shifts in consumer behavior can further cloud the view of future profits.
Sales and Marketing Spend Forecasting
Understanding how much to invest in sales and marketing to achieve revenue and profit goals is a critical, yet challenging, aspect of financial planning for entrepreneurs. This uncertainty can stem from a variety of factors:
- Dynamic Marketing Landscape: The evolving world of digital marketing offers a wide array of channels, each with unique costs. Whether it’s social media ads or influencer partnerships, the landscape is complex and continually changing, complicating cost predictions.
- Sales Cycle Variability: Different products or services have unique sales cycles, affecting the timing and magnitude of marketing investments. For instance, a product with a longer sales cycle may demand sustained marketing efforts, while a seasonal item might require focused spending during certain periods.
- ROI Uncertainty: Marketing ROI can be elusive, making entrepreneurs cautious about committing large budgets, especially if past campaigns have not yielded the expected results.
- Competitive Dynamics: In highly competitive industries, businesses may feel pressured to match or even outspend competitors, leading to unexpected expenditures.
- Emerging Trends and Tools: New marketing platforms and tools regularly emerge, offering potential advantages but also creating additional layers of cost uncertainty. Business owners may hesitate to invest in these untested avenues despite their potential benefits.
The data shows entrepreneurs struggle to forecast marketing budgets amidst an evolving landscape.
Planning for Employee Pay Increases
Planning for employee pay increases is an area where entrepreneurs expressed relatively low confidence, ranking it as their second-least confident domain.
This complexity can arise from several underlying factors:
- Revenue Stability: If revenue streams are unstable or unpredictable, it becomes difficult for businesses to commit to fixed expense increases, like employee salaries.
- Competitive Compensation: The need to retain skilled employees can add pressure to provide competitive salaries. This is particularly true in industries with high employee turnover or competitive job markets, requiring businesses to account for periodic raises.
- Operational Costs: Rising costs in other operational areas can limit the funds available for employee pay raises, necessitating more complicated budgetary decisions.
Payroll Coverage Confidence
Payroll coverage emerged as the area where entrepreneurs expressed the least confidence, highlighting a fundamental challenge in business operations. Several factors contribute to this uncertainty:
- Cash Flow Volatility: Small and medium-sized businesses often face fluctuating revenues, complicating the ability to consistently cover payroll – particularly during lean periods or unexpected economic downturns.
- Operational Expenses: Immediate and sometimes unforeseen operational costs can compete with payroll, further straining resources.
- Lack of Financial Visibility: Not having a clear picture of future cash positions can add to the insecurity around meeting upcoming payroll commitments.
Given the sensitivity and legal implications, consistent payroll coverage is a non-negotiable aspect of responsible business management.
The low confidence in this area likely stems from the complexities of managing inconsistent revenue streams and other immediate expenses while ensuring that employees are paid on time.
This survey point reveals a paradoxical gap between the perceived value of financial forecasting and its inconsistent adoption among entrepreneurs.
Key Supporting Data
- 49% have a regular budget
- 60% have a sales/expense forecast
- But confidence in these plans remains low, at just 48%
Despite seeing forecasting as critical, many businesses struggle to implement and trust the process fully. The disconnect highlights a paradox in business planning between the near-universal recognition of forecasting’s importance in uncertain conditions and the reluctance of business owners to invest time and effort in forecasting.
Several factors likely contribute to this lag between recognition and adoption:
- Resource constraints
- Expertise gaps
- Perceived complexity
Even when practices are in place, market unpredictability and internal changes can still undermine confidence.
The survey serves as a wake-up call. Amid instability, entrepreneurs must close the gap between recognizing the value of forecasting and executing it consistently. This isn’t occasional planning; it’s making projections a consistent part of operations.
Sheer drive alone won’t bridge the gap.
The right tools and expertise are needed to turn intentions into results. With forecasting discipline, businesses gain the power to make bold plans despite uncertainty. After all, committing to financial vigilance allows entrepreneurs to guide decisions and drive growth.
How this survey was implemented
We surveyed two groups:
- Pre-revenue entrepreneurs still developing their ideas and in the process of starting up; and
- Post-revenue entrepreneurs operating existing businesses
Our aim was to benchmark confidence across important startup activities like business planning, financial planning, forecasting, pricing, funding needs, and more. The survey provided a snapshot of the challenges entrepreneurs face in different stages of the startup journey.
These insights equip us to better address the pain points and needs of early-stage business owners so we can better educate and aid them in their paths to success.
Stay tuned for the third installment of this small business survey, focusing on how up-and-running businesses view and leverage ongoing business planning.
Thank you to all who took the time to contribute to the data sets.
