9 Problems Faced by Small Businesses and How to Avoid Them

Table of Contents

1. What Are the Most Common Challenges Small Businesses Encounter?

2. How Can Small Business Owners Prepare for Unexpected Events or Crises?

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Starting a business is rewarding but it’s also one of the most challenging things you can do. Careful planning can help you avoid some of the most common problems faced by small businesses, but it’s virtually impossible to avoid them all. That means that part of your job as a small business owner is to expect the unexpected.

Here at Addition Financial, we work with our small business members to provide them with the information and tools they need to achieve their business growth goals. Part of that is helping them recognize common business challenges. In this post, we’ll be sharing 9 small business problems, along with our advice to avoid or overcome them.

What Are the Most Common Challenges Small Businesses Encounter?

Small business owners must overcome many obstacles on the road to success. Owners often wear multiple hats in the course of a day and that means that they’ve got to be aware of potential pitfalls. Here are 9 common business challenges with some tips for avoiding them.

#1: Negative Cash Flow

The first challenge is one that’s responsible for more business failures than anything else on this list: a lack of adequate cash flow. Cash flow is a term that refers to the net amount of cash flowing into and out of a business in a specified time period. If you have more cash flowing in than going out, your cash flow is positive. It’s negative if you’re paying out more than you’re taking in.

There are some ways to avoid negative cash flow, although unforeseen circumstances can interrupt or slow the flow of cash and be difficult to avoid completely. To keep your cash flow steady, you may need to seek out financing in the form of a small business loan or line of credit. A line of credit may be preferable since you’ll pay only for what you borrow.

#2: Poor Time Management

Time management is essential in any business, whether it’s a larger company or a small startup. It’s common for business owners to dedicate long hours to overseeing various aspects of their businesses–and that’s where time management comes in. It can be overwhelming to be the person responsible for getting a small business off the ground and poor time management can make it more difficult than it already is.

The solution to time management issues is to make scheduling your time a priority. We also suggest that you avoid multitasking. If you’re trying to do two or more things at once, all of them will suffer. Instead, focus on one task at a time. When it’s complete, you can move onto the next.

#3: Lack of Financial Management

Financial management or the lack thereof is a common challenge faced by small business owners. You might have a wonderful idea for a business and all the passion in the world, but those things aren’t enough if there’s nobody to provide financial oversight. 

Because financial management is so essential, one of the best things you can do as a business owner is to hire a bookkeeper or part-time CFO to assist you if you’re not knowledgeable about business finance. A bookkeeper can, in just a few hours a month, help you set up your bookkeeping system and keep your journal entries up to date. They can also create basic financial reports, which you’ll need if you want to apply for business financing.

#4: Lack of Brand Awareness

A small business challenge that can easily be overlooked is a lack of brand awareness. When you’re new to the market in your area or industry, potential customers don’t know who you are or what to expect from you. That lack of awareness may mean that they don’t even consider your products or services as an alternative to those offered by your competitors.

Marketing is the key to building brand awareness. With the right marketing strategy, you’ll be able to make sure your business is visible online and that people learn about who you are and what you do. The best way to build brand awareness is to be intentional about your online footprint. You’ll need a well-designed website and consistent branding wherever your company appears online, including Google, your social media profiles, your review profiles and business listings.

#5: Underspending on Marketing and Advertising

A business problem that’s easy to overlook is not spending enough on marketing and advertising, particularly when you’re just starting out. You might be working with a small budget and think that you’ll be better served spending what you have on other things, but a lack of marketing might mean that your business fails.

The good news here is that you don’t need to spend a ton of your money on marketing for it to be effective. The key is having a marketing strategy that’s designed to reach your target audience and appeal directly to them while educating them about your company. If you’re not knowledgeable about marketing, it may be worthwhile to partner with either an in-house marketing specialist or a digital marketing agency to get the assistance you need.

#6: Lack of Business Growth

Business growth is a goal of almost every company, but it’s also one of the biggest business challenges entrepreneurs can face. One of the specific mistakes some business owners make is being either too ambitious or not ambitious enough about their growth.

An example of a SMART business growth goal would be to acquire 5 new clients in the first quarter of the year. That’s a goal you can track because it involves a specific number of clients in a specific period. You should use your past results to guide you in setting realistic goals.

#7: Low Customer Retention

Customer retention is another common challenge and one that ties directly to your growth goals. It costs far more to acquire a new customer than it does to retain an existing one. Some business owners find themselves struggling to retain customers and it’s essential to figure out the right approach to keeping them loyal and buying from you.

You can improve your customer retention by investing in customer relationships. Ultimately, when customers feel valued and appreciated–and satisfied with your products and services–loyalty won’t be a problem. We suggest tracking customer retention as a KPI and doing everything you can to engage with customers in person and online to make sure they’re happy with you.

#8: Not Hiring the Right Employees

It’s often said that a company is only as good as its employees. That means that hiring the right employee for every position is a business problem that you’ll need to solve if you want to succeed. 

Finding the right employees for your company requires business owners to understand the skills and experience needed for a job and the qualities that will attract the best candidates. You may even want to create candidate personas to make sure you’ve got a handle on what you’re looking for. You may be eager to fill positions quickly, but it’s never a good idea to rush into hiring if it means settling for someone who might not be a perfect fit.

#9: Negative Company Culture

Company culture has become increasingly important to job seekers, employers and employees alike. People spend a lot of time at work, so it makes sense that they want to be in a positive, supportive environment where they feel appreciated and valued. Yet, for all that, a lot of small businesses don’t put any time into creating a culture that’s desirable.

Building a positive work culture starts with defining your company’s mission and values. Next, you’ll need to prioritize healthy communication in all directions. Keep your employees’ mental and physical well-being in mind; for example, you might want to give your break room and other communal spaces a makeover and bring in healthy snacks for your employees. And finally, make sure that maintaining a positive company culture is an ongoing priority.

How Can Small Business Owners Prepare for Unexpected Events or Crises?

Sometimes, the most difficult problems are the ones you don’t see coming. It’s common for small business owners to run into unexpected events or crises that can complicate their business operations or even put them at risk of business failure. Here are some of the things you can do to be as prepared as possible when the unexpected occurs.

• Have a fully-funded emergency account for unexpected expenses or negative cash flow.
• Make payments on time to give you some leverage in the event you need to request a term extension or payment plan.
• Buy all necessary insurance to protect yourself, including liability insurance and income replacement insurance.
• Create a detailed contingency plan to help you weather difficult times.
• Build a network of small business owners in your area and industry and ask them for guidance when you need it.
• Stay flexible and open to new ideas, and don’t be afraid to take input from your employees.

The business owners who are most able to get through a crisis are those who don’t lose their cool. They do what they can to be ready for whatever comes, and they’re humble and flexible enough to understand when and where they need help.

Prioritize Your Company’s Financial Health with Addition Financial

Any business owner can turn their company into a success. In order to do so, they’ll need to understand the 9 common small business problems we’ve outlined here and take steps to avoid them or fix issues as they arise. Finding the right financial tools and accounts is a big part of that.

Are you searching for a financial institution that will help you achieve your business goals? Addition Financial is here to help! Click here to learn about our business services and become a member today.