The 7+1 Biggest Challenges Small Businesses Face

The 7+1 Biggest Challenges Small Businesses Face (pt.1)

Elorus Team
Elorus Team

For all of our infatuation with the Apples, Facebooks, and Googles of this world, it’s small and medium businesses that form the backbone of most countries’ economies.

According to WorldBank data, SMEs contribute up to 33 percent of the GDP in emerging economies, while in the US, SBA (Small Business Administration) tells us that small firms “accounted for 60 percent of the net new jobs” in the 2009 to 2013 period. So, small, medium and personal businesses are doing well (and also, doing good for the economy).

That said, building your own small business is far from a guaranteed success. Besides the inherent challenges in running a small business, there are also some problems imposed by the recent market developments, where many economies are either hit with recession or are just starting to recover from it.

In this post, we’ll examine the 7 most common issues that SMEs and personal businesses face — and some solutions.

1. Money, money, money…

What small business owners discover, is that you need to have money to make money. Having money, for example, allows you to buy stuff in bulk quantities for cheap, something which big companies do all the time (google “economies of scale”).

Having money or some other form of collateral (e.g. expensive office buildings), also means that you’ll get a loan from the bank when you need it to expand your business.

Given the above, don’t build your business on maxed out credit cards and loans you can’t repay, on the off chance of crazy success in its first year. Be frugal and keep money on the side for a rainy day (when a big customer cancels his order when you’re hit with unexpected taxes when actual rain destroys half of your stock, etc.).  And don’t even dream of expensive offices and wild expansion plans, until you’re sure you can pay your employees and suppliers.

2. The bus factor

Would your business survive if you’re hit (mildly) by a bus, and had to stay at the hospital for a month?

If the answer is “no”, your business suffers from “founder dependence”. If everything needs to pass through you, then you’re not only a liability (when you’re forced to take time off) but you’re also a bottleneck to the possible growth of your business. Not to mention the impact on your personal health from overworking.

If you are a one-person operation, consider hiring your first employee as soon as you can afford it. They can take some work off of you, and let you concentrate on the essentials. Try to delegate anything you can for others can handle — e.g. have your books done by a professional accountant, outsource parts of your projects to others, etc. If you own a small company with a number of employees already, then you absolutely should train some of them to be able to replace you on some day to day tasks.

3. Over-reliance  on a few clients

Big businesses have so many (literally millions or even billions) customers, that losing some doesn’t make much of a difference. That’s rarely the case with small businesses though. And it can become fatal for your business’s survival.

If, for example, most of your revenues come from one or two customers, it’s very easy to be left with half, or no revenue at all, if they happen to change their mind, find a better deal elsewhere, or cut their spending. You have basically tied your businesses health to the health of some client’s business. This is not only bad because it makes your income sources more fragile, but also because you give those clients too much leverage. In a sense, they own you.

If you find yourself in this position, even if your client is currently great, and pays good money, don’t ever be complacent. Instead, focus on diversifying your client base to reduce your dependency.

This way, if a project goes south, or a client refuses to pay or takes his business elsewhere, you’ll still have an income to keep your business afloat.

4. Overheads

Anything that doesn’t directly make you money is a potential overhead.

Some of those things can potentially pay for themselves in the long run — or are worth it for other reasons, e.g. buying a good anatomic office chair vs an el cheapo one that will destroy your back. In any case, your goal as a business owner is to minimize overheads, because those are the number one killer of small and medium businesses.

Unless you have money to spare, question everything that you think your business should absolutely have. Especially if you are a small one-person operation just starting out. Do you really need that fancy new $1000 laser printer, or would your old $200 from your home do just as well? Do you need a dedicated receptionist to answer customer calls in a 5-person shop? Is the magnificent view of the city from your offices worth spending two times as much on rent?

That also goes for what you spend on supplies and project costs. You don’t always need to go to market leader brands or the most eponymous products. Spend time and effort to find the best deals that don’t sacrifice quality.

Stay tuned…

In this post, we have a look at some of the most common business problems and solutions that SMEs and freelancers face. Stay tuned next week for the second part of this post, where we tackle four more common small business challenges.