The dream for many when starting a business is growing and becoming a large entity. In reality, most owners have a small business. A successful business. Yet a small one.
That’s not to be discouraging, either.
Small businesses play a larger role in the global economy than we may think. Around 90 percent of all businesses that exist fall into the category of “small.” And around 50 percent of all employment is at a small business.
It’s also worth noting that the official definition of a small business is likely not what we imagine. For most of us, a small business is the local bakery that only opens on the weekends. Or a small gardening business with only 10 clients.
So, what is a small business?
Well, according to the U.S. Small Business Association (SBA), a small business has less than 500 employees and an annual revenue below $7.5 million. This varies based on industry. For instance, a cattle feedlot must make less than $22 million a year, while a soybean farm must make under $2.5 million.
Still, that’s quite a lot of profit and employees for a “small business.” It’s no wonder they make up so many businesses around the world. They are a larger category than many of us think.
Despite being categorized as “small,” small businesses face a lot of challenges. These challenges close the doors for around 20 percent of new businesses in the U.S. after one year. By five years, that number increases to 45 percent.
Knowing what these common challenges are goes a long way in helping you navigate past them. We’ll go over six of the most common challenges for small businesses here. Along with effective methods of solving them. There are more challenges that you must be aware of as a business-owner. But this list will get you started.
1. Cash Flow and Financial Management
Finances, in general, are a big concern for small businesses. Well, for any business.
A healthy cash flow means the business has enough money coming in for covering operational costs. This is not the same as having profit. A profitable business makes money whenever they sell their product or services. However, that does not mean they make enough for covering operational costs. Poor cash flow causes challenges, regardless of whether a business is profitable.
This relates to financial management. Cash flow is not the only aspect of finances that small businesses struggle with. The cost of starting a company is higher than it was in the past. Once you’ve done that, you must work on charging clients on time. And pay off any loans or other fees you have for the business. These payments relate to cash flow, as well.
Clients paying late is a common cause of bad cash flow. And, when you have poor cash flow, you don’t have the funds for paying monthly fees for your company.
Solution
There are several solutions that aid in financial management and cash flow issues. For financial management, get an accounting tool. These tools track your financial performance. And make sure you stay updated on upcoming financial requirements. If possible, you can also hire an accountant, but that is not an option for many small business owners.
Another thing that helps is staying on top of clients. Invoice them promptly after you’ve performed a service. And remind them about late payments. This minimizes your risk of delayed client payments. Which improves the cash flowing in and out of your business.
Finding better funding aids in both cash flow and financial management.
Certain funding options are limited. I get that. But, if you can, consider loans from the SBA. Or Rollovers as Business Startups loans. There are different lending options aside from a traditional bank loan. These give you different options for obtaining the financing you need. And they give you a good working buffer as you work toward improving your finances.
2. Talent Acquisition and Retention
When you have a small business, how can you compete with large companies when it comes to attracting talent? They offer more perks of employment, plus better wages.
This makes talent acquisition and retention a challenge. In fact, it’s such a concern that reports show more than 50 percent of small businesses struggle with matching employee demands for wages.
Small businesses have less financial resources for talent. Yet, they need employees who are skilled in their area. On top of that, once you have skilled talent employed, they may leave for bigger opportunities. Opportunities that you cannot match.
Without skilled talent, you likely will not grow. Your business will struggle with operational inefficiencies. And you’ll have limited options for correcting those inefficiencies. Solely because you don’t have the skilled talent needed for making the corrections.
Solution
While you can’t compete with offering high wages, you can compete with perks. Offer plenty of competitive benefits, such as growth development or flexible schedules. These perks don’t need much investment. Other options include providing competitive health insurance options for employees.
These perks make your workplace more appealing. So, while you may not have the same wages as a large company, you have the perks that employees want.
In terms of talent retention, make sure your employees feel valued and appreciated. This instills a stronger sense of loyalty. How do you do that? Have employee appreciation events. Give out gift cards or rewards based on performance. And consider developing promotional paths for top-performing employees. All this makes your workplace more desirable, thus reducing employee turnover.
Lastly, consider company culture. A strong company culture that employees love will incline them toward staying. For some, this is more important than pay.
3. Staying Up-to-Date on Technology
As a small business owner, your relationship with technology is bitter-sweet. On one hand, technological advances grant you better customer interactions. It improves efficiency and assists as your business grows.
However, it is constantly evolving. And if you don’t stay up-to-date with it, you risk falling behind in your marketplace. This is what many small businesses struggle with. Whether you lack the funds for the newest type of technology. Or you aren’t aware of how your current tech has grown and evolved. You find yourself being behind the competition.
And that is not somewhere you want to be. Not only does it make you less competitive, it also makes you less efficient. It increases security risks, thus contributing to loss of customer loyalty.
Solution
The first step of solving this issue is figuring out where you need technology.. Are you working toward better communication with clients? Focus on finding technology that promotes that. Do you need a way of streamlining operations? Find technology that aids in that.
Where your business’ weaknesses lie, focus on technology that fills the gaps.
Once you know that, do your research. Look for technological solutions that are affordable and scalable. Scalable options are the most cost-efficient. As your business grows, so does the technology you set up. Plus, updating scalable technology is easier, so you stay up-to-date over time.
If you know what technology benefits your business, you are better positioned for making strategic investments. Don’t waste money getting the newest technology that doesn’t solve the problems you need. Instead, spend that money on training and updates for beneficial technology.
4. Government Regulation Compliance
Every location has its own set of tax rules, labor laws, industry-specific requirements, and other regulations. Small businesses must adhere to all these. If they don’t, they risk hefty fines for non-compliance. They also risk being shut down, having their reputation damaged, and even lawsuits.
As a small business owner, it’s your responsibility to know these regulations. And, since regulations often change, you must know all updates before you get in trouble for them.
Maintaining regulatory compliance is a large challenge for small businesses. This is primarily because regulations change so often. One change in the local code means the difference between compliance and non-compliance.
To make matters more complex, image if you move your business to a different location. Or expand your business to a new locale. Well, now there are different regulations you must follow.
Solution
Perhaps the easiest solution is hiring a lawyer. Someone familiar with the legal requirements is the most capable of seeing your shortfalls. Doing your own research about regulations is beneficial. But having a lawyer handle it for you makes your life easier.
However, ongoing legal counsel is expensive. And it isn’t a luxury that every small business has.
So, it comes back to you.
Try incorporating automation tools for things like payroll and taxes. These track your operations and keep you on top of regulations without too much stress. For things outside of that, do the research yourself. Consider joining professional groups for sharing information about regulatory changes. And incorporate strategies for tracking compliance so nothing gets forgotten.
5. Customer Satisfaction
A happy customer is a repeat customer. They are a referring customer. They are a positive-review customer.
Small businesses are concerned with customer satisfaction. Why? Because it grants lots of benefits. It promotes success. And maintains a brand’s strength among the rest of the competition.
As a business owner, you must stand out from the competition. There are plenty of ways for making your mark, but customer satisfaction is a huge one. Satisfied customers impact your success, so it is not something to take lightly.
Solution
Customer experience with your brand plays a big role in satisfaction. As do customer interactions. These areas are perfect for technology. Incorporate technology that automates customer interactions. Or technology that makes your website more navigable. Anything that improves customer experience.
Another solution is creating customer loyalty programs. These promote loyalty, but they have the secondary effect of improving satisfaction. Anyway, these programs provide repeat customers with a certain amount off Or it rewards them for leaving positive reviews. Maybe even making a referral.
Either way, it makes customers feel valued and appreciated for your company. In turn, this boosts their satisfaction.
6. Supply Chain Hiccups
Small businesses rely on their supply chain. This is how you get the services and products you sell, after all. When there are supply chain hiccups, your brand’s reputation is at risk. You may find yourself delaying customer orders. Or missing customer orders entirely. If the issue persists, you often lose sales. Customers find alternatives to your business. And they rarely return once they’ve found a suitable replacement.
Large businesses have an easier time managing supply chain disruptions. They have more funds that grant them flexibility. This flexibility looks like finding a different supplier. Or paying for expediting certain shipments so customers are not lost. Small businesses do not have this flexibility. When they have supply chain disruptions, the impact is swift and severe.
It’s no surprise that supply chain concerns are the top concern for more than 20 percent of small businesses. And that was in 2023, before all the supply chain woes we’ve encountered as of late.
Solution
As you operate every day, keep an eye on your inventory. When your supply chain functions well, it’s not a problem waiting until you are almost out of things. But when you are having supply chain disruptions, a quick shipment is no longer possible. Keeping track of your inventory ensures you can order more with plenty of time. This means you aren’t missing or delaying customer orders, despite your supplier taking longer than usual.
Another option is buying in bulk. In general, you don’t want a lot of inventory that you are sitting on. But, if you see a supply chain issue on the horizon, buy extra and store it. This ensures you have plenty of inventory for outlasting the disturbance. A similar solution is finding an alternative. If you can’t get supplies from your original supplier, start looking elsewhere. Not every supplier has the same issues. I understand the desire for loyalty, but desperate times call for desperate measures.
Finally, if you cannot avoid a disruption to your customer’s, be honest with them. Let them know that you are experiencing delays in your supply chain. Inform them how that affects them. Depending on the situation, offer rebates or rewards in recognition of their patience. Whatever you do, and however you do it, keeping them up-to-date minimizes the negative results of supply chain hiccups.
Handling Challenges as a Small Business
As I mentioned earlier, this is not a comprehensive list. You’ll face plenty of additional challenges as a small business owner. But don’t let that discourage you. Challenges are a part of life, whether you own a business or not.
There are multiple practical solutions available. These aren’t always obvious, but they are always there. Don’t get locked into the belief that you need money for finding solutions. You don’t.
And maintaining that belief will hold you back. Instead of taking risks, you’ll be preoccupied with concerns about losing money. You won’t see how a temporary loss will lead you to success. It will always look like a path to failure.
Whenever you are faced with challenges, exercise your creativity. You’ll find the solutions you need.