Top Challenges Small Businesses Face and How to Overcome Them

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• Financial Management
• Employee Retention
• Market Competition
• Technological Adaptation
• Customer Acquisition and Retention 

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Q: What strategies can small businesses use to differentiate themselves in a competitive market? 

A: Small businesses can differentiate themselves by focusing on niche markets, enhancing customer service, and creating unique selling propositions. 

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It takes a lot of grit to run a small business.  

With post-pandemic inflation, supply chain issues, and technological disruptions, market trends are rapidly changing and becoming more competitive. Businesses are struggling to manage their finances and adopt technologies while spreading their arms even further to acquire and retain customers and top talent.  

In all the chaos, the U.S. Census Bureau recorded over 5.5 million new business applications in 2023. A record high that surpassed the previous years. 

Put simply, although markets are tougher than ever, it’s not enough to break the American entrepreneurial spirit and grit.  

According to the U.S. Chamber of Commerce, some of the biggest challenges these new and existing businesses face relate to hiring and retaining employees and financial issues due to inflation, access to credit, and rising interest rates. 

Understanding these challenges gives you the steam to effectively tackle them and keep the lights on, regardless of the socioeconomic changes. 

In this piece, we’ll address the challenges highlighted by the U.S. Chamber of Commerce and others, including technological adaptation, market competition, and customer acquisition and retention. Providing practical recommendations on how you could tackle them.  

Financial Management 

As inflation and interest rates rise, business owners and entrepreneurs must learn to be more prudent with their finances and implement measures to manage business cash flow and expenses efficiently.  

Most small business challenges would be history if small business owners, entrepreneurs, and startup founders could curtail financial issues that hinder small business growth strategies. 

Access to Capital 

To address financial management, you must rethink your financial strategies from the foundation.  

What is the source of your capital? Is the interest rate something your business can handle in the long run? 

According to a 2023 Goldman Sachs report, more than 75% of small business owners are greatly worried about access to credit. It is one small business oobstaclethat has drawn a very thin line between business closure and sustenance.  

This challenge is tied to rising interest rates and increased closure of small banks, which many small businesses rely on for funding.  

Additionally, most small businesses experience difficulties securing investments or loans due to a lack of collateral or poor credit history.  

Recommended Action  

Explore alternative funding options, such as seeking capital from friends and family with mutually beneficial payback options or bootstrapping. Bootstrapping is effective for covering the cost of running your business at the early stages, especially if you intend to seek more funds for expansion later.  

If your brand has a strong social value that people would easily subscribe to, crowdfunding and pitch competitions for grants might be convenient routes.  

For government loans, look towards federal-backed SBA loans; those still offer considerably low interest rates.  

Once running, ensure proper financial and business compliance and management. This will help in building credit to secure funding for future expansion. 

Services like Credit Suite, eCredable, and Nav can help you build your business credit with less hassle.  

Cash Flow Issues  

Cash flow issues are nightmare fuels for small businesses that are yet to get a solid footing in the market. 

On average, it takes about 18 to 24 months for most small businesses to reach profitability. About 23% of businesses fail within the first year and 48% by the fifth year, according to Lending Tree research.  

Where there is consistent cash flow to cover overheads, most business owners might not mind holding on for 18 to 24 months to reach profitability. 

However, given the inflation rate, consumers are becoming less inclined to spend what they have on new services and products from small businesses.  

Consequently, businesses may find it difficult to spend more on consistently creating quality products and services, leading to reduced customer and investor confidence and eventual closure. 

Therefore, business owners must learn to brace themselves for lean cash flow cycles while hoping for the best. 

Recommended Action 

Knowing that cash flow is a game of chance leaning in favor of lean cash flow cycles in the early days, you must set concrete financial plans that tilt the balance in your favor before you open your doors to customers. 

When creating your financial plan, you should create a budget that sets aside enough money for your business to survive for at least six to twelve months. 

Where there’s limited funding, this could mean reaching into your network of family and friends to seek more support. It could also mean talking to your spouse to see where you can save costs on family spending. You could also attend to the business as a part-time venture while using some parts of your full-time earnings to cover some of your budget until the business becomes profitable. 

Managing Expenses 

With continued inflation and hike in the price of commodities, it’s becoming harder for small business owners to make sense of the expenses in their balance sheets. 

Supply chain disruptions and increased production costs are leading to inconsistencies in managing expenses. It is not unusual to see an over 10% increase in the price of essential commodities within a year. As a result, the idea of maintaining a budget or steady expenditure seems impossible.  

As much as these factors are small business challenges that are not within your control, they shouldn’t be why you lose control of your expenses.  

Recommended Action 

As part of your financial planning, you should consider using accounting and bookkeeping software, such as QuickBooks and Vyde, to track your expenses. Keep all purchase and sales receipts; digitize all the records.  

The aim is to have an easy overview of all your expenditures and be able to review the history to extract insights that help in future planning and budgeting. You could project the likelihood of certain supplies becoming more expensive and at what rate, then allow for excesses in your budgeting to cushion the effects. 

It also helps to negotiate with your suppliers to reach agreements that ensure that the prices of basic supplies are not subject to sudden drastic changes. 

Where finances permit, you can also have an accountant look through your books to determine what expenses matter or don’t.  

Employee Retention  

To save costs and manage finances, small business owners sometimes have to cut costs by offering lower pay and employment conditions to their employees. 

As you’d expect, this is not a good position to be in when there are larger competitors going over and beyond to offer better salaries to the caliber of employees you want in your team. As fate would have it, one of the key drivers for overcoming business challenges is having great employees who buy into your business goals.  

So, how do you recruit top talent and ensure that they stick with you through thick and thin to overcome your small business obstacles and enhance your small business growth strategies? 

Recruiting Talent 

The hiring process is a crucial part of business formation and sustainability. With the wrong hires, you end up wasting a lot of time and money and might even put your business at higher risk of failure. 

However, with inflation and drastically changing socioeconomic conditions, most applicants who would’ve ordinarily qualified as great hires have higher salary expectations and are looking toward larger companies to satisfy that need.  

Recommended Action 

Consider rebranding your company and employer values to appeal to modern employees.  

For context, there is a gradual increase in the number of employees (or potential employees) who find employers and companies with environmental values more appealing. The logic is that if you care for the environment or have a desire for more meaningful work, then you would most likely take care of your employees.  

Rebrand to fit values most sought after in your industry, establishing a company culture that makes employees want to stay with you.  

Back the branding with competitive benefits. Where you can’t match salaries, offer hybrid work, equities, more paid vacation days, wellness programs, commissions and bonuses, and/or career development and training.  

Employee Satisfaction  

Employee satisfaction is the primary driver of employee retention.  

Now that you have the right employees, are you providing all the competitive benefits you promised during recruitment? 

Understandably, small businesses are feeling a lot of pressure in the current economic clime, but that’s not enough to ignore the well-being of employees.  

Businesses with a lower employee satisfaction rate experience lower productivity and growth rates.  

Recommended Action 

Generally, create a more open line of communication and solicit feedback often. If you have reasons to reduce some employee benefits, communicate them early and establish commensurate growth opportunities to compensate for the loss. 

Conduct occasional anonymous employee surveys and polls to understand your employees’ satisfaction rates and identify areas for improvement. 

Whatever the situation, your employees must see that you are making a significant effort to improve their well-being. 

Training and Development  

Employees are less motivated to put in substantial effort in companies that do not provide an environment for personal and career development and growth.  

An investment in an employee’s development is an investment in company growth. As employees upskill, they become better equipped to handle more complex operations and bring your business close to par with bigger competitors. 

Employees want to be trained, and they want the training to be on relevant skills and in a personalized manner, according to Ipsos.  

Recommended Action  

Employee training experts highly recommend implementing modern training methods such as microlearning delivered through employee training apps like Connecteam. This is especially useful if you are creating the training yourself, as it allows you to deliver small pieces of information through various formats.  

You can also pay for your employees to engage in short courses that equip them with relevant skills.  

Market Competition 

Lack of strong financial backing, inability to retain employees, changing market conditions, price pressures, and various barriers to entry, among other small business obstacles, make it difficult to compete with larger companies.  

Still, it’s not unusual that small businesses are spearheading disruptive innovations across industries.  

So, put on your thinking cap as we explore some business problem-solving strategies that could help you build your authority in the market.  

Understanding the market 

You can’t fix a problem that you don’t understand its root cause.  

Insufficient understanding of your business landscape and competitors therein would leave you operating in the blind, taking ineffective swipes at entrepreneurial challenges that consequently follow.  

You have to conduct extensive market research to understand why certain businesses are excelling where others are failing.  

How are they able to offer similar products at a lower price? Why are customers going for their more expensive services?  

Recommended Action 

Your market research should be very extensive. It should go beyond researching for your business development to include a comprehensive review of competitor and industry data.  

Invest in industry reports, networking, and data analytics. This will help you make proper sense of what’s going on, find ways to define your unique selling points and make an unwavering entry into the market. 

Differentiation Strategies  

Saturated markets often leave less room for small businesses to differentiate themselves from other players.  

As a result, consumers overlook them and focus on larger competitors that have already made a name in the industry. They usually assume that in a pool of very similar products and services, small businesses have lower-quality offers.  

Recommended Action 

Sometimes, the problem is not the competition. Sometimes, you have to start where the competition barely exists.  

Since most businesses hop into the market with a view of what’s being offered by companies that have been in the market for a while, they are unable to look beyond the obvious. Hence, they find themselves trying to match long-standing systems when there are many gaps that are unfilled.  

Focus on finding the gaps in the market: Are there unserved or underserved populations in the market? What is their need, and how can your business fit into the picture? 

The goal is to establish or break into smaller niche markets neglected by most competitors and build your products and services around their needs.  

Also, focus on developing excellent customer service. Most consumers will take their business where they feel valued, even if it comes at a slightly higher price.  

Adapting to Changes  

Budgetary and resource constraints usually mean that small businesses are slow to adapt to changes in the business landscape.  

Additionally, running a small business often comes with the temptation to do many things or have many goals at a time—all on a slim budget and resources, making it difficult to determine what to forgo when conditions call for it. 

Hence, small businesses often end up dazed when faced with various business hurdles that come with economic and market changes.  

Recommended Action 

Technological Adaptation  

Technological advancements are sweeping through industries, reshaping how businesses operate and determining who gets to play on the bigger field in the future.  

Businesses that are ordinarily resistant to change are learning to integrate technology across all their processes, from business planning to bookkeeping, customer service, marketing, and sales.  

In fact, technology is the basis for standards and policy formulations guiding the implementation of numerous business processes across industries.  

If trends and forecasts are anything to go by, it is clear that we are barely scratching the surface of what technology could mean for SMEs in the future.  

Understandably, embracing technology comes at a price. A price that is sometimes too steep for small businesses to pay.  

Still, there are loads of affordable technology solutions that small businesses can implement. 

• Generative artificial intelligence (Gen AI) for content creation.
• Marketing software, including AI email marketing tools for personalizing emails for better engagements and email marketing optimization and automation.
• Team communication and collaboration tools. 
• Cloud services for file storage and sharing.
• Financial management and accounting software.
• Customer relationship management software. 

Most of the tech solutions in these categories come at affordable rates, with some offering free versions with fewer capabilities.  

Digital Marketing 

Most small businesses today rely on technology—via digital marketing—to run most or all of their marketing operations.  

Digital marketing helps businesses reach and meaningfully connect with customers, far and near. It enables businesses to quickly spread their brand awareness and enter new markets.  

Besides email marketing, digital marketing also expands to include: 

Social media marketing: This covers the use of social media platforms like Facebook, X, LinkedIn, and Instagram to build your business brand, build community and followership, drive website traffic, promote products and services, and increase sales. 

To maximize the benefits of social media marketing, you should: 

• Identify your target audience and focus on them
• Map out time and resources to constantly engage your audience
• Track and evaluate performance indicators and adjust strategies for better fit. 

Local search engine optimization (SEO): As vital as local SEO is for small business growth, some startup difficulties, such as lack of local business address or phone number, hinder small businesses from taking full advantage.  

Local SEO empowers your business by boosting its visibility on local search results. But first, you must have a business address local to the area you are targeting and also have a local business number to further amplify the credibility of your business and the business address you provide. 

Alliance Virtual Offices services solve these local SEO SME challenges by helping entrepreneurs quickly obtain business addresses in prestigious office locations in target markets, with 411-listed VoIP phone numbers to back it up. Enabling small businesses to develop effective SEO content and strategies without hassle. 

Cybersecurity  

Data protection is a major concern in the adoption of technology solutions. Expectedly, it’s also one of the most troubling small business challenges.  

It is not unheard of that hackers compromised a company’s social media profile, customer database, or financial systems.  

Most small businesses cannot afford the robust security infrastructure needed to properly secure the tech software and hardware facilitating daily operations.  

Still, being security conscious should be part of your business improvement tactics and company culture. 

Recommended Action 

Cybersecurity is a collective effort, with input from you, your employees, and your partners. If your business involves online customer registrations, your customers join the equation.  

Establish measures for educating all parties, especially employees, on the need to be security conscious. Address ways to handle or prevent cyber threats common in your market and encourage the use of strong passwords.  

Proceed to install malware, antivirus, and any other protective software on your hardware to proactively block cyberattacks.  

Set reminders for regular software updates and data backup. Consider the 3-2-1 strategy for critical data backup: create 3 copies of data, store 2 copies on different virtual media, and keep 1 copy offsite. 

Customer Acquisition and Retention 

Customer acquisition and retention are among the toughest SME challenges.  

If you’ve had a recent engagement with an ad agency, you’d know that acquiring new customers costs a lot of money.  

Invariably, it is cheaper to retain customers once they pass through your doors than to let them go and acquire new ones. 

Therefore, you should do everything right to ensure that you have a good base to influence trust, satisfaction, and loyalty among customers. There is a direct correlation between satisfied customers and business growth.  

The following strategies can help you in the process.  

Build Brand Awareness  

Create a strong online brand presence across multiple channels, including your website and social media platforms.  

Regularly update your profiles and website with relevant content that portrays you as a reliable source for news, tips, or general information trending in your industry.

Most importantly, have a team ready to engage with your audience across all channels. 

Being present shows your prospects and customers that: 

• You are easily accessible: Being able to reach a company easily across multiple channels—and be properly engaged—boosts consumers’ confidence in the brand. 
• You have what it takes to be an authority in your industry: Being consistent with the provision of relevant information through various media shows that you know what matters and would be able to handle customers’ inquiries in those regards.  

It is important to optimize the content you share to fit the right audience and platform.  

Also, incorporate search engine optimization (SEO) in both your website and content development to boost your brand’s visibility on search engines when consumers make relevant searches. 

Besides, having a strong brand presence is also a pathway to building community-sourced customer support, where existing customers are willing to attend to inquiries from other customers or prospects. 

Customer Service  

A business could have the best product on the market and still fail if they don’t have great customer service. 

Excellent customer service is the link at the intersection of customer acquisition and retention.  

You might draw in customers with catchy ads and offers, but they will only stay if you treat them right. Customer service is one of the things small businesses capitalize on to push large corporations out of local or niche markets. 

You can improve your customer service for better customer retention by consolidating your support efforts through customer relationship management (CRM) systems, providing an overview for you to identify and prioritize your high-value customers. 

CRMs can additionally help you improve customer retention by: 

• Ensuring appropriate contact data management.
• Helping you personalize content based on customers’ behavior, preferences, and needs extracted from contact data.
• Automating replies for common inquiries, enabling quick resolution.
• Improving internal communication between support and sales teams to help everyone stay updated on relevant issues.  

Lastly, it’s crucial to solicit feedback from customers to determine what could be done to improve their experience. After all, your customers have the best understanding of what they expect.  

Loyalty Programs  

As part of your plans to improve customer retention, you could implement loyalty programs to keep customers engaged and enhance repeat business. 

Besides increasing customer retention rate, a loyalty program also: 

• Improves customer lifetime value
• Encourages word-of-mouth marketing and overall brand advocacy that attract new customers at relatively low or zero costs to your business
• Helps with differentiation, boosting your brand’s competitive advantage
• Promotes upselling and encourages customers to try out your new products or services
• Helps build mailing list and other valuable data for future marketing plans  

You may face some small business challenges if you set up your loyalty programs haphazardly. Therefore, you should take the necessary measures to ensure everything is in order.  

Thus: 

• Set specific goals for the program.
• Learn your customers and choose incentives that appeal to their needs and behavior.
• Set a budget for managing retention through your loyalty program.
• Keep the program simple and within budget.  

Finally, you should offer reward points or similar incentives that help customers determine the monetary value of the rewards. This helps customers determine if the program is worth joining. 

Wrapping Up

The path to overcoming business challenges seems never-ending.  

Truly, there’s no end to them; shifts in market trends often translate to new challenges. However, overcoming these small business issues as they arise brings immense satisfaction. 

This immense satisfaction and associated business growth keep small businesses going.  

Adequate planning is key to getting your business in order.  

This post’s business improvement tactics should serve as pointers for planning and implementing proactive measures. 

Take as much as six to twelve months to lay the proper groundwork for market research, finance management, hiring, tech integration, and customer service before launch. 

Having all these in place makes you better prepared to handle small business challenges and adapt to market and economic shifts as they occur. This can make all the difference between turbulent and smooth business growth.  

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Further Reading: 

• Technologies Powering Virtual Office Spaces
• Empowering Independence: A Guide for the Modern Independent Business Owner
• Maximizing Customer Value: A Guide to Customer Retention Analysis
• Green Marketing Definition: What It Is and How It Works 

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To make things easier, you should consider using AI to streamline your business processes. 

Lastly, Alliance Virtual Offices’ virtual office and live receptionist services make it a lot easier and cheaper to manage your customers, sort your overheads, and build your business credit to secure funding.

Contact us today for a free consultation to learn more about how Alliance Virtual Offices’ services can help you glide over common small business challenges!