Running a business is not for the faint of heart; entrepreneurship is inherently risky. Successful business owners must possess the ability to mitigate company-specific risks while simultaneously bringing a product or service to market at a price point that meets consumer demand levels.
To safeguard a new or established business, it is necessary to understand what can lead to business failure and how each obstacle can be managed or avoided altogether. The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.
Running out of money is a small business's biggest risk. Owners often know what funds are needed day to day but are unclear as to how much revenue is being generated, and the disconnect can be disastrous. Inexperience managing a business—or an unwillingness to delegate—can negatively impact small businesses, as can a poorly visualized business plan, which can lead to ongoing problems once the firm is operational. Poorly planned or executed marketing campaigns or a lack of adequate marketing and publicity are among the other issues that drag down small businesses.
In this guide, we'll cover some of the challenges faced by small businesses, along with the operational problems and solutions. By the end, you'll come away with the knowledge needed to identify potential operations management issues in your organization and how to solve them.
Cashflow Management
Cashflow Management
- Insufficient debt. Some businesses require more debt capital to facilitate their growth. These small business owners may be averse to taking on debt – not wanting the burden, not wanting to take the risk, and believing that the operations should provide their own cash. This belief is typically a sign of inadequate forecasting, budgeting, or understanding of business financials, undermining the owners' confidence. Engaging professionals to build a solid financial plan will give you (and the bank) the confidence to secure a low-cost loan to grow your business.
- High cost of growth. Underperforming sales and marketing tactics can lead to a cash trap where new sales cost more than the profit they bring in, or the time to recover the profit from a new customer is too long. Financial professionals can analyze your cost of growth, (sometimes referred to as Customer Acquisition Costs (CAC) and Customer Lifetime Value (LTV), focus or refine your go-to-market strategy, and make your growth sustainable.
- Excess overhead or inadequate sales. Businesses experiencing a decline in revenue or rapid growth may have a misbalance between their overhead and sales. This can be corrected in a number of ways – pricing strategy, rebranding, reduction in force, investment in advertising, etc. Determining the best correction will be a collaborative effort between you and a turnaround consultant.
- Fraud or embezzlement. Any of the above issues may be a misdiagnosed case of fraud or embezzlement occurring in your business. Fraud is most often committed by your accountant or bookkeeper but could be done by any trusted employee or partner. Using an unbiased third party to investigate fraud is critical to effective detection and remediation.
By far, the most common of the operational challenges faced by small businesses today is a lack of funds and cash flow management. Whether it's effectively managing the money coming in or not receiving enough cash flow, is this a big issue that can derail a company.
Knowing how to solve cash flow problems depends on identifying the root cause. Small business owners often resort to the same mindset for every problem: get more sales, work harder and get into more debt. If you have not identified the exact cash problem in your business, your efforts may be making the problem worse.
An operations consultant will quickly and accurately identify your business cash flow issue. Below are some common small business cash flow issues they may identify:
- Inaccurate cost accounting & poor margins. Small businesses unknowingly grow low-profit or unprofitable products and services because their accounting is inaccurate. A turnaround consultant will assess your accounting, analyze your margins, and make appropriate strategic recommendations.
- Intense working capital structure. This could be driven by a poor supplier or customer relationships, long manufacturing lead times, bad purchasing controls, or lack of inventory controls. Turnaround consultants will implement controls and negotiate with customers & suppliers on your behalf to free up more cash.
- Excessive debt service. Companies with heavy debt burdens or predatory loans are bled dry making payments, leaving no cash available for growth. A turnaround consultant is experienced at renegotiating debt with lenders, stretching payment terms, and forgiving large portions of debt altogether.
Economy
Economy
We can certainly say that small business owners have felt this challenge in a new way over the last year and a half! The COVID-19 pandemic has made uncertainty part of daily life, and it shows little signs of letting up. In addition to the uncertainty around the pandemic, small business owners have to navigate economic uncertainty, natural disasters, community issues, and employee problems that make life feel unstable at times.
A common challenge that the economy can cause for small businesses is the rising cost of prices and inflation. The prices of products and services can have a dramatic effect on your small business. Inflation is the rate at which the prices of goods and services are increasing. If you start to notice a high inflation rate, it means that companies are charging more and more for their products. Hence, they force other companies to keep up. It affects business owners since the cost of materials and goods is rising, making it difficult to reap steady profit margins. Additionally, consumers are no longer able to afford what many businesses have to offer.
Digital Transformation
Digital Transformation
For a small business owner to survive in today's digitally connected world, you must be able to adapt. In other words, you need to be willing to take on a digital transformation for your business to stay competitive.
Now, making the transition from traditional storefront to digital initiatives won't be without its challenges. On the journey to digital transformation, there are a number of obstacles and challenges that small businesses and startups are likely to face along the way. Here are primary digital transformation challenges and how you can solve them.
Tough competition
Tough competition
Obviously, the biggest challenge small businesses and startups are more likely to face on the path to digital transformation is competition from other small businesses and startups. In order to survive and gain an advantage in this increasingly competitive space, you'll need to take risks and set your digital ambition high. You'll also need to keep track of the shifting business climate and put your finger on the pulse.
Using technologies that don't work
Using technologies that don't work
Another common challenge small businesses and startups encounter along the path of digital transformation is investing in technologies that don't work well for them. Although you may not be able to recognize that as a problem in the beginning, it can be very difficult to change things up later on.
As a small business owner, you'll need to pay attention to integrating necessary solutions in a way that can scale with your business as it grows. There exists an abundance of tech vendors out there that can provide flexible tools and platforms that make it easier for you to customize and gradually integrate more capabilities.
Remember that digital transformation doesn't take place all at once, but it's always an ongoing process, so there's no need to rush.
Internal communication
Internal communication
One of the biggest operational challenges small businesses and startups encounter when planning to implement digital transformation is the lack of communication among employees. Since digital transformation requires the optimization of company culture and employee experience, it's very important that you communicate with your employees and share your suggestions.
Gather and make use of customer data
Gather and make use of customer data
Finally, another digital transformation problem most small businesses and startups face is not collecting customer data such as their location, behavior, and engagement. A business's ability to stay competitive in the digital economy requires making faster and forward-looking decisions. There are many ways to leverage customer data that can make small businesses smarter, efficient, and more productive.
The solution to this problem is to implement deep learning to help your business improve data collection and enhance decision-making capabilities. Small businesses should also implement data analytics to provide insights into all aspects of their businesses, which could eventually include things like machine learning to revolutionize the way they market to their target audience.
Letting short-term wins drive your strategy
Letting short-term wins drive your strategy
There's a time and place for appreciating short-term wins. For example, if you're just starting with your social media presence, getting X amount of followers is good. But you can't get fixated on these types of vanity metrics.
Short-term wins are essential to a digital strategy, but you always need to remind yourself to focus on long-term goals. So while building a following may be the initial step, you need to quickly move on to engaging your following, building relationships, and ultimately, converting those followers.
Marketing
Marketing
Marketing challenges for small businesses can be crippling and even lead to an organization's demise. Business owners often fail to prepare for the marketing needs of a company in terms of capital required, prospect reach, and accurate conversion-ratio projections. When companies underestimate the total cost of early marketing campaigns, it can be difficult to secure financing or redirect capital from other business departments to make up for the shortfall.
Because marketing is a crucial aspect of any early-stage business, it is necessary for companies to ensure that they have established realistic budgets for current and future marketing needs.
Similarly, having realistic projections in terms of target audience reach and sales conversion ratios is critical to marketing campaign success. Businesses that do not understand these aspects of sound marketing strategies are more likely to fail than companies that take the time to create and implement cost-effective, successful campaigns.
When you learn how to overcome these business marketing challenges, you can gain brand awareness and ultimately acquire more customers.
Customer Acquisition
Customer Acquisition
Unless you're a reputed brand in your niche, you need to get out there and look for customers. In fact, even the most successful and reputed companies also have to keep building and expanding their customer base consistently.
However, let's admit it. This challenge is much more significant for small businesses because:
- You're still not a household name, so customers don't recognize your brand well.
- Customer acquisition costs (CAC) have nearly increased by 55% over the last five years.
- Limited financial resources don't allow you to spend enough on marketing and advertising.
The above factors make customer acquisition even more difficult for small businesses.
Here are some tips for you to help you acquire more customers:
- Know your audience: Before you can attract customers, you need to know them well (like really well!). Creating a buyer persona is a good place to start knowing the likes, dislikes, goals, challenges, fear, etc., of your target audience. Once you know these details, you're in a much better position to offer solutions through your products or services.
- Focus on retention: Studies show that acquiring a new customer costs five times more than retaining an existing one. So ensure you offer exceptional customer service and earn their loyalty for a long time.
- Leverage social media: Social platforms are the place where you can reach out to maximum potential customers, and that too cost-effectively. Hence, make sure you create fresh content, engage with your audience, and establish your brand presence on social media platforms.
Growth and Agility
Growth and Agility
It's a common story: one day, you're celebrating landing a big client, and the next day you're struggling to keep up with the new client's needs. For small businesses, growth often comes with growing pains. In many instances, you have to make a choice between working long hours and asking your staff to do the same or finding ways to cut corners. Neither is a great solution, meaning that, ultimately, you will have to find a way to grow your business without hurting your business.
Recruitment
Recruitment
Right now, half of the small business owners say it's harder to find employees to hire than it was a year ago. With a growing worker shortage, navigating uncertainty around COVID-19 procedures and policies, and looking for the right fit for your business and your team, hiring is a huge challenge for small businesses.
There are a few different ways small businesses can overcome this challenge. One is by relying on employee referrals—and even offering an incentive. Ask your best employees to refer one or two of their connections and offer them a bonus, gift card, or paid day off if you end up hiring their candidate.
You can also optimize your job postings and do some recruitment marketing to boost your employer brand and attract top talent. If you find you're still having trouble hiring the right talent, you may consider attending a local job fair, hosting a hiring event, or running online ads for your open positions.
Administration
Administration
Many small businesses struggle with administration work such as bookkeeping, payroll, taxes, and so forth. Failing to do these functions adequately can cause problems. Bookkeeping, or keeping track of costs, payments, purchases, and sales, is necessary but time-consuming and potentially complicated. Unfortunately, it's a crucial function in keeping cash flowing. Without adequate bookkeeping, your business can dry up.
Payroll can be even more complicated. Business owners need to keep abreast of Federal, state, and local taxes to make sure they withhold taxes correctly. They also need to comply with other withholding requirements, such as those for Social Security, Medicare, workers' compensation, unemployment insurance, and so on.
If a business offers 401(k) payroll deductions, the deductions must be in employee accounts within a specific time period, or the business can be penalized. You can also be the target of Internal Revenue Service (IRS) fines and penalties for failing to pay the right amount of taxes, underpayment, or late payment. Issues with administrative tasks can also lead to (or stem from) problems in other areas, such as recruitment and time management.
The simplest may be to outsource one or both functions, depending on your needs. Hiring personnel to do bookkeeping or payroll is one option. A less time-consuming and less expensive option is to use widely available solutions. For bookkeeping, many services exist that will scale their services to your needs relatively inexpensively. They provide accounting, expense management, monthly reconciliation, financial statements, and more.
Many payroll services will do the same, providing payroll processing, withholding services, and payment methods to employees. Payroll services offer robust packages that can solve other problems for you. Many offer, for example, human resources (HR)-related functions, such as time-keeping assistance, job description templates, and access to online recruiting services. A payroll services provider can offer assistance in corporate compliance as well, such as assistance with employee handbooks.
Time Management
Time Management
For small business owners, there's always an unfinished task. Twenty-four hours never seem enough. You feel you want additional hours to have everything in order.
You need adequate time management to increase your productivity. Track your time and seek ways to append time to vital activities. You can delegate some tasks and automate others.
Create a schedule and set a time for each activity. Ensure that you include leave days and breaks. Stick to the schedule to bring a sense of order.
Time management will help you to have a work-life balance. Besides, you can focus on your work during the morning hours and schedule afternoons for meetings. Planning on what to focus on at a particular time is a great success recipe.
Furthermore, you will need to lead your employees by example. If you get things done within specific deadlines, they will adopt the culture. Your team will also try to get to the workplace based on your timing.
How to Manage Operational Challenges
How to Manage Operational Challenges
Handling the small business owner challenges isn't easy. But the first step is to identify the root problem and quickly address it. Without this guiding force in a small business, efforts can be disjointed, priorities can become siloed, and the clearest of company visions can often languish in the land of conjecture without ever having the benefit of operational planning to turn that vision into a reality.
With a solid operational foundation, the CEO can focus on the vision and company goals, and teams can focus on high-quality outputs without the distraction of uncertainty. Universal Creative Solutions offers operational consulting services to help you spot challenges that your small business is facing and provide tactical solutions to overcome them. With the right expertise by your side, you won't have to worry about any of these challenges, and you'll be able to scale your business further. Schedule an appointment today and see how we can level up your business!
