There will always be small business challenges. It's impossible to start your own business and not run into problems. This is normal and part of the journey.
But, are there solutions to the most common small business problems? YES!
Running a business is no easy task. No matter how small or large the company is, issues arise and they come in many different forms.
Do you ever feel like nothing is working? Don't lose hope.
No matter what your current problem is, there is someone who has already been there, handled it, and moved on.
Let's dig into the top small business challenges and how you can overcome them.
HIRING & MANAGING EMPLOYEES
Human capital is a vital part of any small business. I'd argue your employees are your most important asset.
But, finding, hiring, and managing employees is a huge challenge. Oh yes! Finding the right people, keeping them happy, and retaining them can be tricky.
Here are a few of the common HR challenges most small business owners face.
1. Competing Against Bigger Companies
Let's face it, a lot of the best talent out there want to work with the biggest companies. Many fresh graduates and experienced workers want to be part of companies like Google, Facebook, Disney, etc.
These juggernauts offer better benefits packages, higher salaries, and other advantages. But...
How can you overcome this small business problem?
Just because you own a small business doesn't mean you don't have advantages. Remember that you are less bureaucratic than those big companies with thousands of employees.
Career growth is something that new hires can expect from working in a less crowded business like yours. A promotion means a higher salary and better benefits.
Don't forget that money isn't everything. There are a lot of other benefits and perks you can offer to make your company extremely attractive. Check out this article for some great tips on how to outcompete large companies.
2. Finding Qualified Applicants
Small business owners usually handle all aspects of their business. From marketing to sales to operations and human resource management.
A lot of business owners don't have the budget to pay for a hiring manager because of the size of the business.
Posting a job vacancy can attract dozens of applicants and owners don't usually have the luxury of time to handle it. This can become problematic. But...
How can you overcome this small business challenge?
You can always apply the concept of "networking" when hiring a new employee.
Have you ever thought of creating an Employee Referral Program? This is a program that rewards employees who refer qualified people to fill your job vacancies.
Your current employees can spread the word and recruit friends or family members from within their personal network. Doing this can cut your time in hiring and help you find awesome candidates.
Don't just leverage your employees either. Let your entire professional network know when you are looking for people. You can also leverage social media to promote your job openings too.
3. The Warm Body Syndrome
Just because something is convenient and cost-effective, doesn't mean it is the best choice. Yet small business owners often settle and hire people just because they are available and inexpensive.
It's also very common to keep underperforming employees in positions way longer than we should. Remember this when managing employees:
"Hire slow and fire fast."
Have you ever heard of the Warm Body Syndrome?
The Warm Body Syndrome is a trap a lot of small business owners face. Employees with this syndrome are physically present but are not engaged. They either don’t get it, don’t want to get it or can’t do it (or a combination of those three).
Hiring and keeping people like this on your team is a total waste of time, money, and resources.
Imagine hiring and training an employee who can't contribute to the business but instead drags everyone and everything down to failure. Frustrating and scary right? But...
How can small business owners overcome this challenge?
Simple, have a hiring process and system in place that you follow diligently. Asking the same interview questions and qualifying each candidate with the same steps will help ensure you hire top-notch candidates.
Once employees are onboard, be consistent with onboarding, training, performance reviews, and goal setting. This will make sure employees get started on the right foot and set clear expectations for both managers and employees.
Don't cut corners with human resources because you are in a hurry or don't have time...it will come back to bite you!.
4. Lack of Human Resources Experience
All of the challenges above boil down to LACK OF EXPERIENCE with the nuances of human resources...and why would you have experience with this?
Most of us did not get into business for ourselves because of our love for human resources, it's simply a byproduct of owning your own business. But...
How can small business owners overcome this problem?
First is to recognize you have very little expertise in this area. So, you have two choices.
- Hire an HR consultant to help you put a solid HR system and process in place that anyone can follow.
- Hire a dedicated HR person to manage this for you.
Personally, I would recommend you do #1 either way. This will ensure you have a system in place that you can do yourself, or hand off to another employee when the time is right.
This is perhaps the biggest small business problem that business owners face today. Even if your business is doing well from a sales perspective, that doesn't always translate into strong profits...
But, with limited resources how can you increase profits?
Here are some simple ways to help you increase profits.
1. Maximize Your Marketing Dollars
Are you spending money on marketing and not sure what your return is?
Do you jump from marketing tactic to tactic with little success?
In order to maximize your profits, it's really important to make sure you are getting everything you can out of your marketing dollars.
How can you do this?
You must create a marketing strategy first, then and only then, can you start to implement the tactics to achieve your strategy.
Jumping straight into tactics without a strategy first is like jumping in your car with no particular destination, wandering around aimlessly. You may go a few places, but you won't really get anywhere of significance or importance.
2. Watch Your Expenses
Are all your expenses truly necessary?
Can you get better rates from other vendors?
Are you leveraging your buying power?
Cutting expenses is an immediate way to increase profits without having to worry about sales. Keep an eye on things like:
- Software as a service (SAAS) companies are so prevalent today. Many of us purchase email systems, data storage, CRM systems, accounting systems, etc. from SAAS providers. They are very convenient and eliminate the need for on-site infrastructure and systems, but the expenses can add up very quickly and they are recurring!
- Are you paying for things you no longer use or rarely use? This is more common than you think.
- The cost of your employees is huge (benefits, salaries, etc). You need to take care of employees, but you can do this and still be prudent with your expenses. Sometimes you might be able to outsource certain tasks for less than you can hire someone.
3. Manage Inventory
If your company owns inventory/product it is really important to stay on top of managing it.
Having too much inventory ties up cash and reduces profits when you have to liquidate items to make room for new items.
There are a number of great online inventory management programs you can use for your small business to help maximize your return on the inventory you carry.
Taking the time to ensure you have the right products at the right times will increase your profits.
4. Don't Hire Unless it's Necessary
Before you decide to hire new people, make sure it's absolutely necessary.
Use systems in your business everywhere you can to maximize productivity.
Employees are usually one of the top 2 expenses for any business. If you can increase the output from your existing employees without having to hire, that goes straight to your bottom line.
Keep in mind, there is a fine line between maximizing productivity and burning people out. Make sure you don't increase productivity at the expense of your employee satisfaction.
And don't forget about outsourcing. There are a lot of cases where outsourcing is much cheaper than actually hiring and managing an employee.
If you'd like a few more resources, check out this article on how you can increase profits.
I just talked about using systems in your business to increase productivity. Do you have a marketing system?
If not, grab our eBook below to learn how to create one today...
First of all, what is the difference between revenue and profit? According to Chron.com,
"Net sales, or net revenue, is the money a company gets from doing business with its customers. Net income is profit - what's left over after the company has accounted for all its revenue, expenses, gains, losses, taxes and other obligations."
Many small businesses fail to increase their revenue because they are missing at least one of these key factors in their business.
Remember our strategy first before tactics discussion from above? It also applies to meeting your revenue goals.
If you don't have a clear sales and marketing strategy, then your tactics will lack the foundation and direction they need to as effective as possible.
Ask yourself these questions to assess your sales strategy (for your marketing strategy click on the "strategy first before tactics" link above):
- What are your sales goals/numbers for the year?
- How are you going to market?
- What market opportunities or weaknesses are you going to take advantage of?
- Who are your competitors?
- What new markets are you going to penetrate?
- What industry changes are you going to leverage, etc?
Tactics are the techniques you will use to execute on your strategy.
They make sure you have the right parts in place. Without solid tactics, your strategy can't be executed and accomplished. The key is to make sure your tactics support your overall strategy.
Ask yourself these questions to assess your sales tactics:
- Does your strategy require inside or outside sales?
- Does it require direct sellers or outbound callers?
- Does it require content and new web support?
- Does it require alternative compensation plans?
- Does it require new territories?
- To accomplish your sales strategy what tactics will you need to use?
This is the most valuable factor that impacts revenue. Without people, no one will execute your strategy and tactics.
No one will be there to assist customers or answer phone inquiries.
Having the right people on your team is the best asset you can have and they are a major driver in growing your revenue.
Ask yourself these questions to assess your people:
- Do you have the right people in the right roles? Especially your managers. Great managers attract and develop great people below them.
- Does the team have the right skill sets and knowledge?
- Is the team's performance contributing to the success of the company?
- Can you measure the strength of your team in relation to your strategies?
- Have you cataloged the key traits and skills required by your team to be successful?
4. Processes & Procedures
Processes are there to ensure goals are met in the smoothest way possible. They encourage efficiency and accuracy on a consistent basis.
Bad business processes and procedures will hurt your small business in the short-term and long-term.
Ask yourself these questions to assess your sales processes and procedures (you should do this for all your processes and procedures outside of sales too):
- Does it enhance the selling process?
- What does your sales process look like?
- Does it accelerate the sale in a systematic way?
- Are our sales processes and procedures in sync with our customer's buying process?
- What is your sales team development process?
- Do you have the right processes in place to ensure you can deliver?
MANAGING CASH FLOW
Another one of the huge small business problems is mishandling and managing cash flow.
CASH is KING! Without it, you can't do much of anything.
Cash flow problems lead to complex problems within an organization that require help from accountants, auditors, or experienced managers.
As business owners, we must learn how to manage our money well or have people onboard (that we trust) to manage it for us.
How do you manage the cash flow of your business? Here are a few suggestions...
1. Always Identify Risks
These risks come in many shapes and sizes. From clients refusing to pay for your service to a delay in product shipments. These risks are real threats that can affect your cash flow and the best way to protect yourself is to plan ahead.
Cash flow risks can come from things like receivables, payables, inventory, and capital expenditures. What will you do if you have to write off a large receivable? How will you manage short payable terms with vendors? What will happen if you have a large, unexpected capital expenditure?
Preparing for these risks allows you to think of plan B, C, and D.
2. Have a Separate Bank Account for Your Business
Many of us don't realize the need to separate personal bank accounts from our business bank accounts. This mistake is very common among small businesses and it usually ends badly.
When you mix them, it becomes difficult to track where your money comes from and where it goes to. Depending on what type of legal entity you have it can also increase your exposure personally for business issues that may come up (I'm not an attorney, so if you are concerned about this you should consult with your legal counsel).
ALWAYS keep personal expenses and accounts away from your business!
3. Use Accounting Software (It's Your Financial Guide)
You can't measure what you don't track! If you do not have an easy way to look at the financial health of your company quickly you will have no idea how you are really doing.
By measuring all the important financial aspects of your business you can easily analyze the things that greatly impact your cash flow.
If you aren't using accounting software already do it now!
4. Always Have Extra Cash
Cash flow isn't always regular when you do business, even for the best of us.
There are businesses that are seasonal. Some businesses are only built to serve during the summertime or holidays like Christmas and this means decreased cash flow during the off-season.
What do you do to make sure your business runs smoothly throughout the year?
Have extra cash. A general rule of thumb is 3-6 months worth of operating expenses in the bank. You may need a little more or a little less depending on your needs and future plans for the business.
Another way to deal with cash flow shortfalls is to have a line of credit. Apply for a line of credit when you don't need one. Why? Because it can be much harder to get one when you actually need it.
Banks want to loan money to financially strong companies, so apply when you are in a strong financial position so you can negotiate the best terms and rates.
Keep in mind, lines of credit should only be used for short-term cash flow needs.
If you plan ahead, have extra cash, and a line of credit in place you will be able to weather any cash flow shortfalls that come up throughout the year.
That's it! Those are 4 of the top small business challenges.
Many of us run into them at one time or another. They help us become better business owners and they make our businesses stronger.
What do you think? Please share some of your biggest small business problems and how you've overcome them.
Header image courtesy of Pexels.com.