How small businesses can avoid financial missteps in an inflationary environment

How small businesses can avoid financial missteps in an inflationary environment

After a career in corporate America, IyaSokoya Karade turned her love of gymnastics and her retirement savings into a new enterprise: opening a youth fitness center in her local community. She soon learned that having a passion wasn’t enough to create a sustainable business. One of her earliest mistakes, she said, was not paying herself a salary.

“Pay yourself, because you will run into a complete brick wall when you have debt, responsibilities,” said Karade, owner and CEO of Athletic Arts Academy in Orange, New Jersey. “You have to provide your service product and you’re looking around and you have nothing.” 

With a team of advisers to help her, Karade has changed both the focus of her business and her mindset.

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“You have to invest in a legal team, you have to invest in someone who is going to look at the money and tell you the truth,” she said. “Some mistakes will cost you triple that on the back end, and it may be the end of your business.”

Not paying themselves a salary is a mistake many entrepreneurs make. More than a quarter (26%) of small business owners said it was their worst financial bad habit, according to a March 2022 survey by Wave Financial.

Separate business and personal expenses

Another major financial misstep: More than one-third (35%) of entrepreneurs surveyed admitted using their personal checking account for business-related expenses.

“A lot of new small business owners don’t spend enough time to keep their books up to date,” said Kirk Simpson, CEO of Wave Financial. His company markets accounting, payments and payroll software to small businesses. Simpson advises having a “true baseline” to understand how the business is performing.

Understand cash flow, set aside reserves

“Cash flow is obviously the lifeblood of every small business,” Simpson said. Yet many businesses don’t focus on how to speed up getting paid. 

Running out of cash is one of the top reasons businesses fail. More than half (57%) of small business owners in the Wave survey said they had less than $5,000 set aside in case of a business emergency. 

Simpson said during this inflationary period it’s especially important for firms to focus on their accounts receivable and getting paid faster, especially if they don’t have the ability to raise prices.

Be prepared to pivot

IyaSokoya Karade, known as “Coach Iya,” instructs students at the Athletic Arts Academy in Orange, New Jersey.


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