How to manage the financial stress of running a business
Running a business is a fulfilling but stressful occupation. There are constant decisions to be made and challenges to solve, and a lot of pressure to get it all right. Intertwined through it all is financial stress.
“Even if you have a team, you are acutely aware that you have the final say on decisions, and that means success or failure rests with you,” says Shana Prinsloo, Director of Clinical Services at Inkblot by GreenShield Health, part of mental health services division of GreenShield, Canada’s only not-for-profit health and benefits company. “Entrepreneurs are usually very aware that any wrong decision can have significant financial consequences for themselves and others. This can be incredibly daunting and overwhelming information to hold.”
While some financial stressors are beyond your control, many are directly or indirectly related to decisions you can take.
Cash flow problems, staffing challenges, supply chain issues, interest rates and inadequate profitability can all be stressful. And they don’t just affect you as a business owner. When a business is struggling, that can have impacts on your staff, partner businesses, and disrupt personal and family finances.
Strategies to minimize financial stress
When a business runs into cash flow or other financial problems, it can be tempting to think that a business loan will solve the issue. Caroline Comiré, Assistant Vice-President of Business Restructuring at BDC, says that a loan in such a situation is usually just a patch. It won’t solve the underlying problems and could even lead to the financial problem getting bigger.
“A loan is almost never the best and/or the only solution,” she says. “The snowball is just going to get bigger and it’s going to be harder to get out of it.”
Comiré says that good financial management is the best way to avoid financial trouble before it becomes a source of stress. She suggests the following strategies:
Limit your personal financial exposure
Before you even start a business, consider how much of your personal assets you’re willing to invest in your business. Set a limit and stick to it. That way, you’ll have the peace of mind of knowing you won’t lose what you can’t afford to lose, even if your business fails.
Comiré adds that friends and family who invest in your business also shouldn’t overextend themselves. This can help reduce the guilt you might feel if they lose money.
Know your business’s financial situation
It’s vital to have a complete and current picture of your business’s finances at all times. Even if your business is doing well, there is always a chance that it could change quickly. That’s why you need to know how much money you’re making, which products and customers make up the bulk of your revenue, what your expenses are, etc.
And it’s not enough to know what’s happening now, says Comiré. You also need to do forecasting, budgeting and analysis to know what’s coming.
“Run some scenarios to see what’s likely to happen if interest rates go up, or if sales go down,” she says. “With a better idea of what will happen in certain situations, you’ll be in a better position to handle them if they arise.”
Manage your debt
Comiré says debt is not inherently bad. Investing in your business by taking on a business loan can set you up for growth. As long as you’re generating enough cash flow to service the debt comfortably, it’s not a problem.
But the more debt you have, the harder it is to manage if something goes wrong. More loans often mean dealing with more financial partners, which adds scrutiny to everything you do and complexity to your reporting requirements.
If you find yourself considering a loan to pay off existing debt, Comiré recommends instead doing the work to understand the source of your financial difficulty so you can deal with the root cause, rather than adding to your debt load.
Make your banker a partner
Your bank can be one of your most powerful allies, says Comiré—as long as you’re transparent about your situation.
“The worst thing you can do is surprise your banker,” she says. “Whatever’s going on, they can help you deal with it, but only if they know about it.”
The more your banker knows about your situation, the sooner they can help get you back on track. Many banks even have a department that specializes in helping businesses navigate financial challenges. For example, BDC’s restructuring team works with business owners to identify problems and develop solutions to get them back to stability.
Comiré adds that by hiring and keeping a competent CFO, entrepreneurs gain a valuable partner that will provide great help in dealing with financial stress.
Some financial stress is to be expected
While the above strategies can help avoid the stress associated with serious financial difficulty, the reality is that running a business means financial concerns are frequently top of mind. It’s natural to experience some related stress.
“Anxiety is essentially a natural defence mechanism against a perceived threat,” says Prinsloo. “And financial challenges can absolutely be perceived as a threat.”
Prinsloo recommends basic stress management strategies including:
- getting enough sleep
- eating a balanced diet
- exercising regularly.
- Create work-life balance.
She also underscores the value of spending time away from the business doing activities you enjoy with people who bring you joy.
The burden of carrying the stress alone can also add to it. Entrepreneurs are often perceived—even by other entrepreneurs—as pillars of strength who have everything under control, which can make them feel isolated when the reality doesn’t match the perception.
“But entrepreneurs are not alone,” says Prinsloo. “So many are all experiencing the same thing. Acknowledging the struggle can really help dispel the myth that you’re not supposed to feel the way you do.”
She also notes that not everyone experiences stress and anxiety the same way, and something that feels manageable for one person may be debilitating for another. It’s important to pay attention to your own feelings, and reach out to your physician or a mental health professional if you start to feel overwhelmed or your ability to function is impaired.
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