5 Common Challenges Most Small Businesses Face

September 19, 2016 By Richard Poulson

Thousands of businesses are created every year, but only a few manage to survive the first few years. According to Harvard Business School professor Shikhar Ghosh, about 3 out of 4 startups fail.

5 Common Challenges Most Small Businesses Face

Why is the failure rate so high? Competition, administrative issues, fluctuating markets, and several other issues mean success is often elusive. Creating a business is a risky investment and there isn’t much room for error – all it takes are a few mistakes to ruin a small business's chances for success.

The following challenges stand out as the most common troubles small businesses face:

1. Relying Too Much On A Few Clients

So, you just landed a huge client.

It might seem like your business is heading in the right direction. They throw a lot of money your way, they’re reliable about paying you on time, and it’s a great boon to your business. However, this can lull you into a false sense of security.

When most of your revenue comes from just one or two clients, your business is unstable. If one of those clients pulls out, you could suffer a serious financial blow. Client diversity is key to the long-term health of your business.

It's important as a business owner to understand client acquisition and how and where your best clients find you. Be sure to check out our blog post: 5 Effective Ways to Get More Clients Using the Internet.

2. Employees are Burdened with Too Many Responsibilities

For most small businesses, payroll is the single biggest expense so they try to cut down on cost by hiring just enough people to operate.

Although you shouldn’t hire more people than you need, you also don’t want to stretch your employees too thin. Giving an employee too many responsibilities, or any responsibility they’re not equipped to handle, creates stressed or resentful workers and more errors.

In a highly competitive business world, it’s important to please not only customers but also your workforce. Errors might drive consumers to your competitors and a poor work environment could cause a high turnover. You need to do everything you can to leave a good impression. You might have to bite the bullet and hire more staff to keep your standards up.

3. Keeping Up with Documentation

Small businesses often make the mistake of leaving accounting services out of their budgets. However, maintaining detailed and accurate records is one of the most important aspects of any business. It’s unrealistic for business owners to take on the burden of such detailed documentation, and record-keeping mistakes often lead to tax trouble and regulatory fines.

This problem is further complicated if you are in a highly regulated industry, such as medical care.

Your business plan should consider the implications of and margin for keeping up with necessary documentation. Hiring someone with expert knowledge is often the best way to ensure your business meets all its deadlines and requirements.

4. Growing Too Fast

Businesses look to growth (new client acquisition) to track success, so how could growing quickly be a bad thing?

Growth is great when you’re prepared for it, but most small businesses can’t make a smooth transition. If you’re not ready to scale up, growing too fast can lead to disaster. You might miss deadlines, products can go out of stock, and your reputation might suffer.

The solution here is to balance quality with growth. Set a quality standard and commit to it. If you can’t produce your expectation in quality, and you’re not heavily capitalized to grow, you may have to turn down work. While this can be disappointing, it’s better than having customers who aren’t satisfied with the goods or services you produce.

5. Cash Flow is Key

Most people don’t realize how many expenses businesses have and where all the money goes. Bookkeeping, payroll, taxes, insurance, office rent, utilities, supplies, equipment, maintenance – the list of overhead expenses is nearly endless. Cash continuously flows so managing it is key to operating any business.

Collect on your receivables promptly to make payroll, pay taxes and insurance and keep track of cash flow to make sure your operation runs smoothly.

Free Guide  What Every Small Business Owner Needs to Do To Keep Their Financials Organized


These are just some of the issues that come up after starting a business. We know how confusing it is, so if you have any questions about running a small business, feel free to contact us and ask.

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