Small business owners offer advice on finances

We surveyed 140 small business owners to learn their thoughts about business finances. Here’s what they had to say.

Inflation and taxes are top concerns

The biggest concerns small business owners have are inflation and taxes. Seventy-eight percent of respondents said they are either somewhat concerned or very concerned about both of these things, with inflation being more concerning for more people. Here’s how their answers broke down. 

When asked how concerned they are about inflation: 

• 42% said they are very concerned 
• 36% are somewhat concerned 
• 5% are neither concerned nor unconcerned 
• 9% are somewhat unconcerned  
• 8% are very unconcerned. 

When asked how concerned they are about taxes:  

• 33% said they are very concerned 
• 45% are somewhat concerned 
• 15% are neither concerned nor unconcerned 
• 11% are somewhat unconcerned  
• 7% are very unconcerned. 

Recession, supply chain, wages and funding

Recession is also an area of concern for 74% of the survey respondents, with nearly half being ‘somewhat concerned.’ When asked how concerned they are about recession: 

• 29% said they are very concerned 
• 45% are somewhat concerned 
• 11% are neither concerned nor unconcerned 
• 9% are somewhat unconcerned  
• 6% are very unconcerned. 

Supply chain issues are the next most concerning area for small business owners, with 61% expressing concern. When asked how concerned they are about supply chain issues, the response was that: 

• 24% are very concerned 
• 37% are somewhat concerned 
• 17% are neither concerned nor unconcerned 
• 10% are somewhat unconcerned 
• 12% are very unconcerned. 

We also asked how concerned business owners are about increasing wages. Less than half (44%) said that this is a concern for them. Specifically, the responses were that: 

• 18% are very concerned 
• 26% are somewhat concerned 
• 27% are neither concerned nor unconcerned 
• 14% are somewhat unconcerned  
• 16% are very unconcerned. 

When asked how concerned they are about obtaining funding for their business, 24% of respondents said they are concerned, while 45% are unconcerned. Our survey data shows the following  about their ability to obtain funding: 

• 14% are very concerned 
• 10% are somewhat concerned 
• 31% are neither concerned nor unconcerned 
• 19% are somewhat unconcerned 
• 26% are very unconcerned.  

How do small business owners fund their businesses?

We asked small business owners how they funded their business when they started it. Overwhelmingly, entrepreneurs used their personal savings (71%) to fund their ventures. Fifty-eight percent said they bootstrapped, using incoming revenue to pay for expenses and for growth. (Respondents could select more than one answer.) 

Five percent of respondents got loans or gifts from family or friends to start their businesses. Three percent received a grant, and two percent got a business loan. One percent (each) got venture capital or equity funding, and one percent got an SBA loan. Funding sources cited by fewer than one percent of respondents included crowdfunding and an enterprise finance guarantee.  

Startup costs are only half the battle, of course. There are ongoing costs that may not match up perfectly with incoming revenue, so small business owners often need some kind of credit to see them through the ups and downs of cash flow.  

Of the small business owners we surveyed, 64% have a business credit card. Fifteen percent have a business line of credit, and the same number have a business loan. Thirty-two percent have none of these sources of credit.  

Paycheck Protection Program loans and other pandemic-related help

Of the 140 small business owners who answered our survey, 27% received a PPP loan. Of those loans, 97% were fully forgiven and 3% were partially forgiven.  

Twenty-four percent received other pandemic-related help, either instead of or in addition to a PPP loan. Of those, 58% received an Economic Disaster Impact Loan (EIDL), 9% got an employee retention tax credit, 18% got a state or local grant, and 28% got something else, including unemployment insurance.  

How do small business owners keep their books?

If you want to run a successful business, it’s critical to know how much money is coming in and how much is going out, and to be able to make adjustments as needed. There is also the little matter of taxes, which can be almost a full-time job in itself.  

Sixty percent of the business owners who answered our survey use accounting software to keep track of income and expenses. Thirty-two percent have an accountant, and 14% have a bookkeeper. Forty-four percent have a tax preparer. And 20% have a financial advisor, coach or mentor to help with decisions around money. Sixteen percent do it all on their own – they don’t have or use any of these resources.  

How are business owners preparing for a recession?

We asked small business owners what steps, if any, they have taken for a recession or financial downturn. Here’s what they had to say.  

Sixteen percent said they are adding to their business savings, making sure their emergency fund is adequate or reducing their debt.  

Ten percent have established other sources of income, such as looking into passive forms of revenue, getting a part time job, and offering new products and services.  

Seven percent said they are reducing their expenses and being more careful when spending money.  

Five percent mentioned both spending less and saving more. 

Twenty-two percent said they have not taken any steps to prepare for a recession or financial downturn.  

Lessons learned from experience

We asked the small business owners who responded to our survey about the most important thing they learned about business finances. Here are some of their words of wisdom. 

On savings:

“Having savings or a safety net is essential.” 

“It is a slow build, so do not rely solely on the business.” 

“No one cares about your business – or your business finances – more than you do.” 

“Don’t overextend yourself. It’s difficult to get out of the hole.” 

“Discuss tax planning ahead of time.” 

“Constantly have a pipeline of new business.” 

“Maintaining accurate records is crucial.” 

“Prepare for the worst and hope for the best. Have excess capital for the slower times, invest in the business thoughtfully, and do not overspend when revenues are higher than usual.” 

Advice for entrepreneurs just starting out

We asked small business owners what advice they would give someone who is just starting out on their journey to entrepreneurship. Here’s what they had to say: 

“Managing finances is like building a house; you can't start by shingling the roof, you have to pour the foundation first. So start small, and with the basics, and stop worrying about all the hype you hear about. You'll get there, but you're not there yet.” 

“Try to minimize overhead and work within your means instead of starting from a place of debt.” 

“Make sure you are prepared for different scenarios and have backup plans.” 

“Pay attention to your numbers and understand what they mean.” 

“You WILL burn much more cash than you think.” 

“Find the right people, take care of them, and let them do their job.  It doesn't have to be exactly your way, hear their ideas.” 

“Be smart but don't be afraid to invest in yourself. Investing in you and your business will be extremely beneficial for your growth.” 

“A business is nothing close to a job. You have to be pursuing leads in parallel in large quantities, and not wait until one lead succeeds or fails to pursue the next one.” 

“Talk to a bookkeeper before setting up your books and take a few of the free informational sessions offered by your state or municipality.” 

“It will cost more than you think and take longer too, but don't give up too soon.” 

One point that was made by many respondents to the survey: “Cash is king.” Many business owners cautioned against amassing debt and recommended keeping a cash cushion in case of unforeseen circumstances.  

The overwhelming sentiment we heard from small business owners with respect to finance was to prepare for any possibility. Business insurance can help you prepare for risks you can’t see coming, and can protect the business you’ve worked so hard to build. Visit hiscox.com to get a quote today.  

We surveyed 140 small business owners by email between August 4 and August 15, 2022. Respondents are members of the Hiscox Small Business Customer Insights panel.