If you want to run a smart business, winning in the “street fight” economy is a necessity. A tight labor market, pressures on economic growth, and high-interest rates make competing as a small business owner difficult. If you’re searching for the best finance tips for small business owners, you can start by being smart about managing your labor costs and learning how to keep your costs down. 

Factors Impacting the Current Labor Market

Today’s “street fight” economy pits companies against each other in the fight for new market share. In the short run and long run, the current labor market will struggle as Baby Boomers retire. Birth rates drive the supply of labor in an economy. While the 2008 recession kept many Baby Boomers in the workforce, 2019 was the year when the economy finally began to run out of labor. After an additional 3 million people became retired in 2020, a total of 40% of Baby Boomers were retired by the end of the year.  

By 2019, the United States unemployment rate was under 4%. Whenever the unemployment rate drops below 5%, it signals that everyone who wants a job already has one. In most markets across the United States today, the majority of people who want a job are employed. For business owners, this means finding high-quality employees at a reasonable price can be a challenge.  

Finance Tips for Small Business: Understand the Impact Labor Has on Your Company 

While labor conditions have eased since 2022, labor demand continues to exceed labor supply. This means that companies will keep competing for top talent. 

At a recent interview on Mission to Grow’s “Tips for Growth-Minded Business Owners” podcast, Greg Crabtree discussed how most employees prefer higher wages to better benefits. Because of legislation passed during the last decade, most employers already provide some type of health insurance, so insurance isn’t a part of the hiring equation for many workers. Beyond health insurance, the only other benefits employees consistently care about are 401(k) matching contributions. However, most applicants would rather get a job that has higher pay than higher 401(k) matching contributions.  

To use the top tips for managing small business finances, you should start by looking at your compensation package. When you pay employees a fair wage, you get the moral high ground to ask for fair market performance as well. Higher wages also increase the odds that you will be able to entice your competitor’s most effective workers.  

When you hire employees, it’s useful to think of the training zone, chasing zone, and replacement zone. 

• Training Zone: When workers are in the training zone, you end up paying them more in compensation than they produce. Ideally, you want to shorten the training time they need as much as possible, so they can start operating at full capacity.
• Chasing Zone: This zone is the point when you have to pay top-dollar prices to chase the best workers. It is also the time period when high-dollar workers start demanding more money to stay. However, they can eventually reach the point where they earn more than the value they add to your business. 
• Replacement Zone: As a smart business, winning in the “street fight” economy means knowing when someone reaches the replacement zone. This phase is when the employer’s wage keeps going up, but they aren’t bringing in any more revenue. At this point, the smartest decision is to switch to a worker who offers a better value for their cost. 

 

The Best Tips for Managing Small Business Finances 

There are a few tips for managing small business finances that can help you increase your company’s profitability and success. 

1. Monitor Cash Flow 

Your cash flow statement is important for showing where your money comes from and how it is spent. It also demonstrates how liquid your company is. Strong cash flow can help you navigate any financial crisis or unexpected problem. 

2. Invoice in a Timely Way 

When you don’t send out invoices right away, you are basically loaning your customers money. Ideally, you should send out invoices as soon as your orders have been delivered. Additionally, they should include the payment terms and interest rates for late payments. 

3. Repay Short-Term Loans Every Three Months 

Another one of the best finance tips for small business owners is to manage your debt wisely. Short-term loans, by definition, should last for a short duration of time. In general, your short-term loans should be paid off at the end of every fiscal quarter. 

4. Plan Ahead for Tax Time 

To manage your finances wisely, you need to plan ahead for your annual tax payments. You should be managing your tax payments so that you have zero liability at the end of each year.

5. Monitor Your Expenses 

One of the top finance tips for small businesses is expense monitoring. Over time, it is easy for your expenses to creep higher. By monitoring your expenses, you can discover unnecessary costs and find ways to cut back on your spending. 

Smart Business: Winning in the “Street Fight” Economy

The top tips for managing small business finances can help you navigate a changing economy. Thanks to a tight labor market, the best finance tips for small businesses often revolve around labor costs and monitoring your expenses. By learning the best finance tips for small business owners, you can improve your company’s financial health. 

If you need help with business finances, reach out to our small business HR experts today.