Owning a small business can be a very rewarding experience, but one that comes with a unique set of challenges. Fortunately, there are ways of meeting – and overcoming – these challenges.
Even with thousands of huge corporations operating in the United States, small business still makes up the backbone of the U.S. economy. In fact, small businesses employed more than half the American workforce in 2011. According to the Department of Commerce’s National Telecommunications and Information Administration, they’re also responsible for almost 40% of the gross national product, or GNP.
Small businesses have an advantage over big box stores and corporations—they’re tied into the communities they serve. Your locally owned hardware store, for instance, might not have everything that a huge home improvement store has, but you can build a relationship with your local stores that you won’t find at the corporate megastore.
Unfortunately, even having those close business relationships with neighbors and friends isn’t always enough to keep small local businesses afloat. They face many challenges and struggles that can force them to shut down. According to the Bureau of Labor Statistics, only 19% of the businesses that started in 1994 are still in operation, and only half of the businesses founded in 2010 are still running.
Certain Challenges They Face
Federal, state, and local governments are constantly making new regulations that small business owners need to comply with, and often that compliance requires large amounts of money to set up and maintain. Environmental regulations, for instance, while not necessarily a bad thing, can cost small business owners exorbitant amounts of money to purchase infrastructure, equipment, and training for employees.
It can be difficult to meet all government requirements, but typically the government agency in charge of a given regulation has information on its website to help business owners understand what’s required of them and how they can be compliant. Business owners who take the time to understand new regulations are already far ahead of the game.
Lack of Employee Productivity
Data compiled by analysis firm CB Insights shows that 23% of small business owners say that the failure of their business could partially be attributed to poor hiring practices that brought in the wrong people. In other cases, people aren’t suited to the job they’re performing, such as employees with bad attitudes directly interfacing with customers.
To combat this problem as a small business owner, don’t settle for just getting “bodies” to do the work; take the time to conduct an actual search, use a solid interview and vetting process for new employees, and consider using a probationary period.
Inability to Diversify Product from Competition
In order to beat your competition, you need to stand out in your industry. Businesses that offer the same product as everyone else with nothing that makes it special won’t get the biggest share of the market. When two businesses sell a product that looks the same to the customer, they often choose whichever one is less expensive—and being the cheapest product on the market isn’t always a good idea either.
To beat this problem, brainstorm ways you can make a total product that’s better than the competition, whether that be through using different materials, smart advertising, or putting a twist on your business and customer service.
It takes money to make money, so the saying goes, and if you’re running a small business, then you already know this to be true. You might be buying inventory, materials, or equipment; maybe you’re paying employees or renting a space for your business to run in. Whatever your business, you have costs. If you can’t meet those costs, your business is going to fail.
You can help protect yourself from cash flow-induced failure by being careful with your spending. If you’re feeling the pinch from accounts receivable that are outstanding, consider getting a loan using those as collateral; it can help tide you over.
How to Find Funding
Money might not solve all your problems, but if you’re a small business owner, it can help solve a lot of them so it’s important to know where you get the funding; whether it’s small business loans, grants, or crowdfunding.
Small Business Loans
The federal government’s Small Business Administration offers government-backed loans for small business owners. Having that government guarantee helps you get approved by lenders; even if you don’t pay the loan back, the government will ensure the lender gets its money. That makes you a less risky prospect, and lenders are more apt to approve your application. According to the SBA website, in most cases maintaining a good business credit history is enough to qualify.
In addition to the SBA, there are also private banks and lenders that offer traditional small business loans. Similar to SBA requirements, applicants must meet certain criteria for approval which may include strong business credit, some level of communication of business intent, and more.
Only 1% of businesses ever use crowdfunding, but it’s becoming a far more mainstream option if you need to get some cash for your business. In a crowdfunding scenario, you put out the idea you have, and the public can fund it with small contributions—in some cases as little as $5. Kickstarter is one crowdfunding platform that allows you to put your ideas out to the world—and get funding from people who want to see it work. There’s no credit check or application needed; if the market loves your idea, they’ll fund it.
Small business grants are also available, and they could come from government sources or third-party organizations and even other businesses. They don’t require repayment like a loan does; they do, however, have a lot of requirements and an application process. In order to find the grants you qualify for, you’ll need to do some research—there are thousands of them.
Running a small business can be difficult and include a lot of challenges. There are ways to make it work, however, and with some effort you can see your business not just surviving but thriving.