Every business has certain characteristics that make it unique from the others. Some of them may include market share, type of production process (capital intensive vs. labor-intensive), a brand image in the market, etc. Based on some of these factors, businesses are classified as large, medium or small sized ones.
Living in this highly-competitive world, things really don’t go in favor of small and medium-sized businesses. Some of the major challenges faced by smaller businesses include not having access to instant capital, market reach, hiring the right staff, ensuring client loyalty, investing in healthcare management, focusing on business diversification and much more. You surely need a cool head on the shoulders if you are the owner of such a small business that is making its way to the world of growth and profits. Let’s discuss in detail the major challenges that make the life of a small business tougher in today’s world.
CHALLENGES FACED BY SMALL BUSINESSES
In this rapidly moving world, healthcare is a necessity rather than a luxury. For the owners of a small firm with limited finance, they must look after the well-being of their employees. However, due to limited resources, most of the owners are unable to provide the same medical services to their workers as larger businesses can. This financial blow may lead to less productivity, but in extreme cases.
Look up your cash books and see the number of customers responsible for your revenue. If you have one customer responsible for more than half of your sales, we are sorry to say but you are definitely slacking off. If your whole company’s cart depends on one sheep, this is not a safe move.
Brand loyalty is fine but if you only have one loyal customer, then this is not a sustainable business model. Most times, small firms do face this problem of diversification in broader markets as they serve niche customer bases. They may not realize it now, but it could be a potential problem later.
LACK OF SUFFICIENT FUNDING
It goes without saying that every successful business requires some kind of funding every once in a while. If you own a small setup, you may go for the small business loan types to bridge the financing gap. Most companies do that by using external financing from organizations and banks that give out loans at an interest percentage. What small firms face as a challenge here is that external organizations find it difficult to invest large sums of money on small firms. They fear potential bad debts, hence they are more reluctant towards the little ones. It turns out to be true in the case when firms have borrowed a large sum of money, used it somewhere and are not able to generate enough funds to pay it back. However, it may not be the case with all firms because some firms may actually organize their flow of funds well enough and develop a good enough credit score. Therefore, they easily acquire funds from big external organizations despite their small size. If you fall into that manageable category of little firms, you do not need to worry!
Competition is a regulating force that lies everywhere in the world. In the case of small firms, many of them may find it difficult to keep up with the fast-rising competitors that practice predatory pricing and other unethical ways to crash small businesses down.
Moreover, it may be difficult for small firms to cut down their costs and produce at a lower average cost as compared to the big companies. This is mainly because of the economies of scale achieved by large producers as they reach their Minimum Efficient Scale (MES) of production. Hence, selling at such low costs is not an option for most small businesses which could push them into a loss-making trajectory.
We all know that government regulations are a real thing in the 21st century, where every government wants to be as effective as it can be! Having said that, governments often impose anti-pollution laws, stricter environment controls, and other such regulations that need companies to invest extra to comply. This is difficult to keep up for small firms as in most cases they do not have the necessary equipment to follow certain rules and regulations.
Small companies may not have enough staff to track their progress and they may violate some rules un-intentionally, which could lead them to pay extra fines and taxes in compensation. This could be a financial burden for the whole company and hence would be a problem both in the long run as well as in the short run.
QUALITY OVER QUANTITY
This is a cliché phrase that almost all of us have heard. Small firms tend to figure out the size, quality or quantity, and often get confused in the process. Most of the little ones think that if they decide to produce a large number of units they may be able to expand their customer base, but that does not work out.
Companies often try to overload their products in terms of numbers but cut back on quality which doesn’t go well with customers. Most customers prefer high-quality products that are limited in number, and small companies generally fail to follow that path. So, if you are the owner of a small company and are confused between quality or quantity, weigh out all your options. We would recommend you to produce high-quality products, be it limited in number!
There is no point in establishing a business where there are no buyers for the products or services. There is never a ready market for any new products. Even the larger enterprises invest heavily in the marketing and sales departments to make sure they keep getting new clients for their business to prosper.
When you have a small business setup, you should first decide your niche market, and then invest your resources and energies to properly market your services and goods. This way, you can build the business on a sustainable model.
One of the core strengths of any business is the pool of loyal customers. Especially, when it comes to small businesses, it is quite a hard job to keep clients for the long term. You always have to be on your toes to make things happen and fulfill the clients’ requirements at all costs. This is why you should have access to instant funding so that you never falter on production promises.
THE FINAL WORDS
Even though we can’t look over the fact that problems are inevitable, we can look on the brighter side and focus on what we can do as a small firm. Challenges can often become blessings if handled rightly, and here we are all for that! We have mentioned some challenges faced by smaller firms, but there is always light at the end of the tunnel. You can be persistent with your business ideology and keep pushing for the right solutions.