Introduction
The biggest challenge for many small businesses is usually finance. They run on a small budget. Hence, they can neither compete with established businesses nor afford to foot the bill of all the projects they would have liked to do. Hence, any team managing a small business would always like to implement cost-saving strategies in order to remain in business. Maybe they could look in the direction of an innovative technology like the blockchain
Blockchain technology offers many tools and features that could help a team automate some of their business processes and better manage their little budget. One of those features of a blockchain for this is smart contract. In this discussion, notice various ways that smart contracts could help business teams to save cost and improve operational efficiency.
Smart contract solutions for small budgets
Smart contracts are agreements built into a computer program which executes automatically once the terms are fulfilled. Small business teams could implement smart contract in at least two major ways to reduce cost. One of the ways is to use smart contracts to execute transactions or processes done manually. Such processes could include automating recurring fees, managing payments and settling debts.
Another cost-saving way to use smart contracts is to replace the middlemen with smart contracts wherever possible. Middlemen or intermediaries provide lots of useful services for small businesses in exchange for a fee. Sometimes the cost of these services are expensive and recurring. They could be done without additional costs through a smart contract. And if these services are recurring, the smart contract would have saved a lot of money for small businesses.
Now consider specific ways and examples of how smart contracts could replace costly processes and still achieve a high level of efficiency.
Example 1. Legal services
The way our traditional economies and systems are set up today, makes it look like legal services are indispensable. Legal teams are usually hired to serve as middlemen between transacting parties. For a small business, a legal team might be used in many ways. For example, legal teams could be involved in signing a job agreement. They stand as a third party to witness the transaction and validate it.
Legal teams provide other services today and so they could be extracting substantial cost from the small business and put pressure on their tiny budget. A small team could consider replacing some or all of the work of a legal team with smart contracts. This is possible.
Solution: Smart contract instead of legal fees
Some, if not all of the job of a legal team could be done by a smart contract. Interestingly, it would be nearly feeless and very fast. Consider the signing of job agreements between the small business and other parties. These agreements could be programmed into a smart contract instead of having legal witnesses.
The advantage of using a smart contract to validate business transactions is to achieve automation and save cost. Legal teams for example would have to manually check on the transacting parties to ensure that both are fulfilling their part of the terms. This could attract a monthly or periodic legal fee or other fees to keep the process longing.
When a partner defaults in the agreement, a legal team comes in to intervene usually through litigation which is usually time-consuming and expensive. But for a smart contract, the defaulting party automatically have their rewards withheld by the smart contract. This is automatic, fast and does not attract any extra fees. So a blockchain-based contract platform could be used by the small business to implement some of their business transactions. In this way, a legal intermediary might just be needed on contract basis, periodically or not needed at all.
Example 2. Banking services
Another intermediary that looks irreplaceable for a small business is the banking sector. The bank provides so much useful services for a small business like offering of loans. A small business might decide to apply for loans from a bank in other to boost its working capital.
Another work that banks could do for small businesses is in the payroll department. The business team could maintain several bank accounts for various purposes including to settle the wages or salaries of its workers. There could be many other financial services that small businesses might depend on banks to fulfill.
The bank take services charges for all these services. Depending on the type and number of services used, the fees could be large of small. For example, if the small business took loans from a bank, the interest might be high depending on the amount. The business team might also be expected to deposit some collateral to insure the loan. All these could attract some spending from the small budget of this business.
Solution: Defi takes care of all finances
A small business team might consider replacing some or all of this banking needs with defi. After all, it is faster, more convenient and feeless. Defi applications are mostly built with smart contracts to achieve automation. A small business can access an array of tools and products from defi that competes or even outperforms banking services.
For example, defi loans are very easy to obtain and does not require time-consuming processes and extensive documentation. To obtain defi loan does not equally involve background credit checks and banking history analysis. Once the small business has that required crypto collateral, they could access a defi loan which often has very low interest rates.
Defi could still replace the banking payroll system. Crypto wallets for all workers are free unlike bank accounts that require valid documents and some processing fees. Smart contracts could be set up to handle payroll. Unlike the banks that require human input to process staff salaries, smart contracts are automated. They execute once each staff completed their duties and provided proof of work. Again in this example, a smart contract does the job faster, more efficiently and feeless.
Defi might not replace all the banking services. But, majority of the work a bank does for a small business could still be done using defi and smart contracts.
Conclusion
Small business teams need to look at alternatives to all the services they spend money on. They run a small budget and would be better off spending only on things that are necessary. They could make do with smart contracts. Smart contracts could do the job with human intervention, without expensive fees and efficiently too.