Don’t underestimate a small business. They are the backbone of the economy. But they also face challenges that can be difficult to overcome. From cash flow issues to staffing problems, we take a look at a few of the most commonly reported difficulties, then explore practical solutions and insights to help you overcome and build a thriving small business.
Small businesses play a pivotal role, in driving innovation, fostering local economies and embodying the entrepreneurial spirit. According to a report by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) in June 2023, the economic contribution of small businesses to the Australian economy exceeded half a trillion dollars in 2021-2022, accounting for one-third of Australia’s GDP. The report also showed that almost 98% of businesses in Australia are small businesses, providing jobs for 5.1 million people.
However, the journey for small businesses is not without obstacles. They encounter a myriad of challenges that test their resilience and adaptability. The ASBFEO report stated that around 43% of small businesses failed to make a profit and 75% of small business owners earn less than the average wage. Across the ocean, the U.S. Bureau of Labor Statistics reports that around 20% of small businesses fail by the end of their first year. By the end of their fifth year, 50% of them will have closed.
These sobering statistics show that, while running a business can be rewarding and purposeful, it is often fraught with difficulties. Let’s delve into a few of the common hurdles faced by small enterprises and explore some practical ideas to overcome them.
1. Limited resources of a small business
At the heart of many small business challenges lies the issue of limited resources. Unlike their larger counterparts, small businesses often operate on tight budgets, constraining their ability to invest in crucial areas such as technology, marketing and human resources. When cash flow is interrupted, which can happen when a few clients fail or are late to make payments, a business may struggle to pay its bills and invest in growth. Additionally, the current economic climate with its inflation and rising interest rates is making it challenging for small businesses to keep up. This can result in a lack of confidence from customers and partners, difficulties in obtaining financing, low morale and an uphill battle to stay afloat.
Small business owners have to make strategic choices to maximise the impact of every resource. It is also necessary to have sufficient capital or reserves to draw from. Some small business owners reduce their risk by holding a job while building their business at the same time. You can also consider SME (small and medium-sized enterprises) loans or angel investors as sources of funding.
A key tip when operating with limited resources is self-efficacy. Once you have developed your business plan, stick to it and execute it diligently. Perform reviews periodically and adjust when necessary, but be consistent. Resist the urge to deviate from a well-thought-out plan, whether it’s in financial management, customer relations or your brand promise. Give it time and study the data before making major changes. Performance coaching can help you keep track of your goals and maintain self-efficacy in growing your business.
Here are some tips for managing cash flow effectively:
- Keep track of your cash flow regularly. This will help you identify any potential problems early on and take corrective action.
- Forecast your cash flow. By projecting your cash inflows and outflows, you can anticipate any shortfalls and plan accordingly.
- Monitor your accounts receivable and accounts payable. This will help you ensure that you are collecting payments on time and paying your bills promptly.
- Consider using capital cash flow solutions, such as accounts payable automation software, to streamline your cash flow processes.
Creating a budget is an essential part of financial management. It can help you plan for the future, allocate resources effectively and avoid cash flow problems.
- Start with your revenue projections. This will give you a baseline for your budget.
- Identify your fixed and variable expenses. Fixed expenses are those that do not change, such as rent or salaries. Variable expenses are those that can fluctuate, such as marketing or inventory costs.
- Allocate your resources based on your priorities. This will help you ensure that you are investing in the areas of your business that are most important to you.
- Review your budget regularly and make adjustments as needed.
As your business grows, financial management will become more complex. Consider working with accountants and financial advisors. You may also wish to expand your financial literacy by learning about financial principles and best practices to make better decisions.
2. Challenges in marketing and visibility
Establishing a strong market presence is a formidable task for small businesses, particularly when competing against larger, well-established entities. Limited funds may restrict the scope and effectiveness of marketing efforts, making it challenging to reach and resonate with the target audience. In some cases, the target audience has not been properly identified and understood, thereby leading to ineffective advertising efforts.
Brand awareness is particularly important for a business that’s just starting up. Your target audience needs to know who you are, what you offer and what value you can bring them. Branding is the process of creating a unique identity for your business. It can help you stand out from your competitors and build a loyal customer base.
- Define your brand values and mission. This will help you create a clear and consistent message for your customers.
- Develop a unique visual identity. This includes your logo, colour scheme and other visual elements that represent your brand.
- Create a brand voice. This is the tone and style of your communications, such as your website copy or social media posts.
- Consistently communicate your brand message across all channels.
In today’s digital age, an online presence is a necessity. Digital marketing and social media platforms enable businesses to reach a broad range of potential customers. More critically, the digital space is also where most customers spend their time, and a business needs to be where its customers are.
- Once you’ve identified your target audience, focus on the social media platforms that they prefer.
- Create a content calendar. This will help you plan and schedule your social media posts in advance.
- Use a mix of content types, such as images, videos and blog posts.
- Engage with your followers by responding to comments and messages.
You may also wish to consider other services such as public relations and lead generation campaigns. Market surveys and analytics will help you understand your target audience better and drill down into their preferences.
3. Hiring and keeping good employees
Attracting and retaining skilled employees is a perpetual challenge for small businesses. One U.S. survey of small businesses in 2023 reported that nearly 50% of business owners described the hiring process as “very difficult” or “somewhat difficult”. In another study, 52% of respondents revealed that the most significant problem facing small businesses was labour quality.
Limited resources can make it challenging to attract top-tier talent, especially when competing with larger corporations that may offer more attractive compensation packages and advancement opportunities. Small businesses are faced with a low number of applicants or candidates who do not have the experience or skills required. Moreover, being a small business with a small team means requiring employees who can handle multiple tasks.
Here are some tips to mitigate these problems:
- Define your ideal candidate. This will help you create a job description and identify the skills and experience you are looking for.
- Create an advantage by using psychology in your search and hiring process. When you recruit with psychology, it allows you to understand the candidates’ inner person, discover their soft and hard skills, and whether they will be a fit for your organisation’s values and ethos.
- Use multiple channels to advertise your job openings, such as job boards, social media and employee referrals.
- Conduct thorough interviews and background checks to ensure that you are hiring the right candidates.
- If possible, offer competitive compensation and benefits packages to attract and retain top talent.
Additionally, small businesses can try offering unique, non-traditional benefits and perks for employees, for example, having a pet-friendly workplace, dry cleaning services, free (healthy) snacks and so on. Don’t forget the most in-demand employee benefit since Covid: flexible work arrangements.
You can also focus on creating a positive work culture and providing opportunities for professional development. Identify promising employees and offer them coaching to groom them to be leaders. Investing in employees will help them feel valued and engaged, leading to increased employee satisfaction, reduced turnover and even higher productivity. Building a strong employer brand plays a significant role in attracting top talent too. A well-regarded brand is appealing to prospective employees and helps draw the attention of more qualified applicants.
Build a thriving small business
While small businesses face a multitude of challenges, they also possess unique strengths that can propel them to success. They tend to be more adaptable and more able to build strong relationships with customers and employees. By playing to your strengths, having the foresight to plan for turbulence and using available resources wisely, small businesses can thrive and contribute to the vibrancy of local economies.
As executive coaches, we can help you develop self-efficacy, resilience, self-awareness and leadership skills to ride the waves of running a small business. Get in touch with us today.
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