Small Business

How SMBs Can Improve Their Finance Management Amid Global Economic Recovery

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The business sector is regaining footing after experiencing the worst in the past four years. Recent data shows a sustained increase in business openings across the US. 

As of March 2024, there were 435,629 business applications, with SMBs comprising the vast majority. Although the number is lower than in 2023, it shows a sharp recovery from the 2022 lows. From the look of things, the trend will remain stable and higher than pre-pandemic levels. 

Even so, entrepreneurs must still not let their guard down. The economy is poised to recover, but a slowdown this fiscal year is still possible. As such, they must watch out for their finances to ensure liquidity and fundamental sustainability in a still-recovering economy. 

However, they must maintain the value they provide to their employees and customers. Hence, we will provide some savvy tips to enhance business finance management. 

Digitize Your Business Transactions 

Digitizing your business does not only mean going to the internet for your marketing strategies. Although they can boost customer engagement and market presence, it is just the tip of the iceberg. Digitization and automation cover a broad range, which is crucial in business finance management. 

One way is by adapting to the fintech revolution. Over the past decade, the US has shown a decreasing trend in cash transactions. From 2015 to 2022, cash transactions in all purchases dropped from 24% to 14%

In contrast, cashless transactions in all purchases rose from 24% to 41%. As more customers use debit cards, credit cards, and e-wallets, businesses must also embrace them. That way, more customers will be inclined to transact with you. 

Another way digitization benefits the company is its increased efficiency in production and operations. It improves precision and simplifies accounts payable and receivables management. 

Electronic invoices make it easier for workers to track unpaid transactions with suppliers and uncollected receivables from customers. They will not have to go crazy about manually checking piles of invoices and misplacing some, which can cause unexpected expenses and unnecessary employee burnout. 

Lastly, it makes it easy to check inventory levels. Tools or solutions like SAP optimize inventory management. With these, warehouse employees can check the raw materials and supplies they need to replenish or replace immediately to avoid problems with their supply chains. 

Because digitization and automation simplify various business transactions, completing a task will be easier. This streamlining contributes to lower stress levels among employees and higher productivity. 

Reflect on Capital Funding: Business vs. Personal Loans 

When starting or expanding a small business, owners may rely mostly on the cash in their capital pool. 

However, the current balance may not sustain their operations or finance their business plans. This is particularly challenging for startups since resources are limited, and often, they incur net losses in the first few years. This loss leads to temporary cash burns to cover their daily business needs before realizing ROI. 

It may help if you get more funds for your expansion plans or new product and service launches. You may consider issuing shares or stocks to raise capital in the current market environment. Yet, finding new investors may not be as easy as 1-2-3. 

So, applying for loans can be a convenient choice. Getting access to funds will be easier and less of a hassle. Also, you will retain your rights as the business owner and decision-maker. On the flip side, business loans are not always accessible. The approval odds vary with your credit score and collateral. 

A personal loan is an excellent option today. It allows you to borrow with quick approval, even without a business credit score. It will be your initial funding source, which can be helpful for your business and personal purposes. Also, you won’t need collateral to secure a personal loan. So, your assets, including your business, will remain safe. 

Even better, you can get access to low-interest personal loans. This type of personal loan bears interest much lower than the market average. Note that the US’s average personal loan interest rate is already about 12%.  

With low-interest personal loans, interest rates can be as low as 5%. Suppose you apply for a typical personal loan of $10,000 with an annual interest rate of 10% over five years. After completing the loan repayment, the total interest paid is $2,650. But if you apply for a low-interest personal loan with an interest of 5%, the amount will be much lower at $1,320. 

Open High-Yield Bank Accounts 

The Fed maintains the interest rate hike pause as inflation decelerates. However, given the slight uptick in March, they will likely postpone their plan to make three rate cuts this year. 

Additionally, the actual interest rate is much higher than pre-pandemic levels. It is the first time to reach this high since the Global Financial Crisis. 

Conversely, your business can take advantage of it by opening a high-yield account. Deposits benefit from elevated interest rates by earning more. This behavior is more typical in checking accounts, given their higher APYs than traditional savings accounts. They have stricter policies regarding minimum balance requirements and monthly and overdraft fees.  

But what makes many online checking accounts special is the perks your business can get when you open an account. Many banks offer sign-up bonuses, cashback, and discounts. Also, banking transactions are more convenient as digital banking proliferates. As your suppliers and customers embrace cashless transactions, opening an online checking account can be wise. 

Invest and Insure 

Increasing your efficiency to generate higher revenues and operating income is an excellent way to increase your cash reserves. But in the long run, it may not be as sustainable as you think. 

It may even compromise your production and output quality. Business owners must seek ways to increase revenue streams and protect their businesses if another crisis comes. 

One way is to invest in another business. Another is to enter the stock market, which continues to heat up as the macroeconomic indicators relax. 

If the trend continues, you may generate higher price returns in the long run. Hospitality stocks are enticing today as tourism continues to rebound. Shipping companies, energy producers, and technology companies are other good choices. So, investing in various industries makes your investment portfolio well-diversified. 

You must add extra protection to your finances once you have enough savings and stable investments. Buying P&C and general liability insurance makes your business financially secure during unfortunate circumstances, such as natural calamities, fires, hackings, scams, and lawsuits. 

Promote Employee and Consumer Engagement

Your employees and customers are the lifeblood of your business operations and the end-to-end points. They deliver and receive the products or services you offer. Nothing will be produced and sold without them; no revenue and income will be generated to sustain your business. As such, you must engage them to ensure loyalty. 

For your employees, you can motivate them by providing a competitive salary. As funny as it may sound, their compensation package must be able to “compete” with the rising prices of commodities. That way, they will remain engaged and productive. 

But if you can’t provide a salary raise, you can devise other strategies to motivate them. For instance, you may implement flexible work arrangements to promote work-life balance. This can boost their morale amid still-elevated inflation and persistent great resignations. They can save substantial money instead of spending on transportation and restaurants. 

Recent statistics showed that most employees prefer flexible work setups. Also, this drives their productivity and retention. 

Even better, implementing remote or flexible work can help you save more money. Since not all employees come to the office on the same day, you may rent a smaller office space. And since you are embracing digital business transactions, your office location will be less of an issue. 

You can also motivate them by providing skills training programs so they won’t feel stuck and stagnant. You can do this yourself or assign someone in your office during non-peak seasons. 

That way, you will not have to spend money on someone outside the company. Maintaining a vibrant work atmosphere can also help. This can be through decorations, non-work huddles, and town halls to create a relaxed vibe and promote inclusion. 

On the other hand, you can engage customers by improving their experience. Improving product quality and setting competitive prices can help. 

However, involving them in decision-making can strengthen your ties with them. Doing quarterly business reviews or QBRs can help you determine the gaps to bridge and increase the value your business can provide. 

They will feel more engaged, so you can establish rapport with them. This approach can solidify brand loyalty and strengthen your market presence. 

This is less expensive than the traditional survey in various business establishments. You can do QBRs via phone or video, making it more accessible and convenient. Plus, reviews are more comprehensive, allowing you to get more customer insights. 

Takeaway 

Efficient business finance management is essential to keep your business afloat today. You may encounter some challenges since the economy has yet to recover fully. 

But with proper solutions, strategies, and skills, you can do these smoothly—your business may thrive and derive more revenues in the long run. 


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