Author: Che Kohler Translator: Cointime Lu Tian
Running a small business is hard work. You take all those risks, do all that unpaid or extra work, just in the hope of a bigger payoff at some point in the future. Being an entrepreneur means you’re investing time, capital, and energy. You’re taking a gamble, and there’s no second choice.
You give up the security of a paycheck in the hope that you can capture market share or create an entirely new market where you can serve customers and generate cash flow. Most of the time, this bet doesn’t pay off, and the vast majority of businesses fail, but it doesn’t stop the next round of entrepreneurs from trying and trying again.
As a business owner, you have many challenges to overcome, not only from direct competition, but also from uncontrollable variables such as government policies, regulations, exchange rates, interest rates, employee retention, etc. At the same time, you have to ensure that expenses remain low and profit margins remain large enough to cover these expenses and create a little profit for rainy days.
In addition to these challenges, small businesses also face competition from larger companies, supply chains, and changing customer demands. Yet, despite all these challenges, there are many reasons to start a small business. Small businesses are often more agile and adaptable than larger companies, and can provide a more personalized customer experience.
If you are considering starting a small business, it is important to understand the challenges you will face. However, if you are focused and persistent, you can overcome these challenges and build a successful business.
Financial pressure is one of the challenges
While running your business and trying to meet market demand, you are also responsible for managing working capital, paying taxes and other fees, and dealing with inflation.
Managing working capital is one of the biggest challenges of running a small business. This is the money you need to run the day-to-day operations of your business. If you don't have enough working capital, you may not be able to pay your bills, meet your obligations, or maintain a profit.
Taxes are another major expense for small businesses. The taxes you owe depend on the type of business you run, your revenue, and your expenses. Taxes can be a heavy burden on small businesses, especially if you are unfamiliar with tax laws.
There's also the challenge of dealing with the hidden tax of inflation. Inflation is the rate at which prices rise over time. When inflation is high, it's harder for small businesses to control costs, which can result in lower profits or even losses.
As a solo business owner, I know the ups and downs. It's either feast or famine, and to keep things running smoothly, you need savings to bridge the gaps and protect against uncertainty. Your business's ability to store capital for the long term allows you to weather some of the challenges mentioned earlier.
Recently, Bitcoin has become an increasingly popular asset choice, especially for small business owners. Bitcoin's decentralized and encrypted nature allows it to quickly and securely transfer and store value around the world without the need for intermediaries. This could help reduce banking and remittance fees for small businesses and provide cheaper and faster cross-border payment options. In addition, Bitcoin can be used as collateral, providing a new option for small business financing.
Although the price of Bitcoin is volatile, it is valuable for small business owners who want to achieve greater returns to invest a certain percentage of their cash flow assets in Bitcoin. Of course, investing in Bitcoin also requires caution, in-depth understanding of the market and risks, and maintaining sufficient liquidity to avoid unnecessary losses.
In summary, as a small business owner, you have many financial challenges to overcome. Bitcoin may offer some favorable options, but you need to do adequate research and evaluation before investing.
Lack of savings
Small businesses lack savings, and business savings accounts are used to store funds to build cash reserves, which is very important for the future stability of small businesses. Business savings accounts are an important supplement to business account assets, designed specifically for businesses and built around short-term and long-term needs and access requirements. In business, like in life, one never knows what is about to happen. Therefore, savings can provide a financial buffer and can strengthen your balance sheet to drive your business forward.
Here’s how a business savings account can benefit your business:
It creates a buffer for the unexpected. Savings can help you cope with changing market conditions and emergencies. Most businesses will experience dry spells, a complex economy and unforeseen events at some point, but having liquid assets means you can have certainty in your business expenses without taking on more debt.
By placing funds in a business savings or investment account, you gain the advantage of interest and income that can be used to improve your overall cash flow management or increase the financial security of your business.
It can accelerate your business growth. Having extra cash on hand can help you achieve your business goals faster and increase profitability. Available funds can be used to reinvest in the business or prepare your company for strategic growth, enabling you to take bold action when opportunities arise.
It can help you pay for major purchases. Whether you are planning future expenses or investments, need to replace equipment, make upgrades, or need to pay sales taxes, preparing for necessary expenses by setting aside funds can mitigate the financial impact and help move your business forward.
In summary, business savings accounts are very useful for small businesses, helping them build cash reserves, improve financial security and stability, and prepare for future growth. If you are a small business owner, it is recommended that you consider opening a business savings account.
Inflation's attack on cash savings
As a small business, savings are obviously necessary, but cash savings face the challenge of inflation, especially for businesses that use relatively unstable currencies. Inflation can cause permanent damage to a small business's savings.
Ongoing inflation can be a significant challenge for small business owners. As prices rise, the value of your savings decreases, which means you need to spend more to buy the same goods and services. Additionally, inflation can make cost control more difficult, which can lead to lower profits or even losses.
For example, let's say you have $10,000 in savings. If inflation is 5%, then after one year, the value of your savings will be reduced to $9,500. This means you need to earn an additional $500 to maintain your savings level.
If you are a small business owner, facing inflation can be more challenging. This is because you may have to raise prices to offset the rising costs of goods and services. However, if you raise prices too much, you may lose customers while also having to compensate employees because they also need to deal with inflation.
There are steps you can take to protect your savings from inflation. First, you can invest your money in assets that are likely to appreciate in value, such as stocks or real estate. Second, make sure your business is on solid financial footing. This means having enough liquid funds to cover your expenses and weather an economic downturn.
Inflation is a complex issue, but it's important for small business owners to understand how it affects their finances. By taking steps to protect your savings, you can help ensure the long-term success of your business.
Inflation can cause business owners to misallocate capital
If you were sitting on melting ice, you would be cautious, but the natural intention of a business owner is to create the most value for capital. A business owner may choose to use capital to expand the business to increase cash flow, which is a rational step. However, this does not mean that there is always a market to expand or that now is the right time to expand.
Additionally, overextending yourself to serve more customers or offer 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 often find a natural balance of serving their local community, but inflation forces them to expand beyond their means, leading to their eventual failure.
Another option for business owners is unnecessary consumption, where they extract value from their business to pay for travel, vehicles and other items in an attempt to extract capital, pay less or no tax and enjoy some of that value. While there is a valid argument for this unnecessary consumption, it does encourage you to run your business as lightly as possible, exposing your future cash flow to unforeseen risks.
Not surprisingly, many business owners choose to adopt a spending model to avoid inflation, but they tend to close their businesses at the slightest problem in the economy or supply chain, especially if they do not have access to cheap credit or other means of financing. Therefore, business owners should carefully allocate capital and seek sustainable operating models to ensure the long-term success of their business.
Bitcoin as a buffer
You may be wondering, how will Bitcoin, one of the most volatile assets of the past decade, help us navigate this situation?
Betting on deflation
First, no one is saying you need to convert all of your holdings into Bitcoin. Instead, you can hold a certain percentage of Bitcoin for the long term and not want those funds to be eroded by inflation. Since Bitcoin is a deflationary currency, in theory its value could increase over time. This means your Bitcoin savings could appreciate in value, which would not only protect against inflation, but also provide you with additional working capital that you can put to use when needed.
Hedging political and currency risks
Secondly, Bitcoin is a borderless currency, which means you can send and receive Bitcoins anywhere in the world without having to worry about exchange rates or transaction fees. This can be a major advantage for businesses operating internationally, or as a possible hedge if you need to move operations, for example due to political unrest, currency failure or worse.
Hedging custody and regulatory risks
Third, Bitcoin is a secure currency. Transactions on the Bitcoin network are verified by a network of computers, so it is difficult to forge or double-spend Bitcoin. This makes Bitcoin a good choice for businesses that need to store funds securely but don't want to entrust a third party. This property comes in handy if you live in a country where institutions do not meet the highest standards in terms of reliability, regulation, and security.
A safe haven for excess capital
Bitcoin can serve as a refuge for your excess capital, helping you avoid trying to grow at all costs or withdrawing capital for unnecessary spending so that you can extract some value from your business. You can also use Bitcoin as collateral to access funds in a more tax-efficient manner, or even get funds cheaper than you would borrow in your local market.
Of course, there are some risks associated with holding Bitcoin; it is not a panacea that will save all businesses. The price of Bitcoin fluctuates greatly, so the value of your savings can 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, whether to keep Bitcoin is a personal decision that you must decide on your own or with your shareholders. However, for businesses seeking a safe, borderless and deflationary currency, Bitcoin may be an option to store part of their operating capital.