In this piece, we shared the top 15 small business challenges in 2022 and how to navigate them to put your business on the path to growth.
John has always dreamed of being an entrepreneur.
After years of waiting, planning, and raising funds from personal savings and relatives, John thinks he is ready to live his dream. He believes that his experience as a business development executive in a fast-growing tech startup, where he co-led the company’s customer acquisition efforts and supervised three new product launches, has prepared him for the tasks ahead.
John launched, and the future looks promising.
But everything changed in less than three years. The business failed, adding to the 70 percent of startups that fail within their first five years.
John couldn’t believe it—all the efforts, money were gone with the wind.
Sad ending for a promising young entrepreneur.
To ensure it doesn’t happen to you, we identified the top 15 challenges you might face while starting, growing, and funding your business and how to outmaneuver them.
And that’s what this article is all about.
So, let’s get to it.
Challenges When Starting a Small Business
Twenty percent of startups fail in their first year.
So, starting a business is no easy task. We’ve identified the top five challenges you could face while starting yours and how to navigate them for a seamless takeover.
Wondering what we found?
Startup Challenge 1: Unskilled Leadership
Skilled leadership is far from being just a figurehead.
In addition to continuously seeking innovation and communicating openly, a competent leader must embrace and actualize diversity, equality, and inclusion among their ranks.
Furthermore, the individual must ensure that everyone is aligned with the company’s mission, constructively address issues, and anticipate crises well in advance.
According to research, only 48 percent of employees positively perceive their company’s leadership, meaning you’ll need to roll up your sleeves to get a better approval rating.
Action the tips below if you’re wondering how to solve this challenge.
How to Solve Small Business Leadership Challenges
Experience plays a vital role in solving leadership challenges.
With experience by your side, you can handle numerous problems without overthinking. Attend business seminars and boot camps to acquire knowledge from experts in your field.
A comprehensive Study found that individuals who received leadership training increased their performance and learning capacity by 20 percent and 25 percent, respectively.
Many of these programs educate not only on leadership theory and principles but also on how to apply them in the workplace.
Remember, you are an important figure to your business, so don’t be hesitant to spend on developing yourself as a leader because it will be beneficial to you and your firm at large.
Leadership skill is essential in growing your business. It helps you make the right decisions.
Startup Challenge 2: Lack of Startup Capital
In the initial period, small businesses may experience difficulties securing finance to expand, introduce new products, settle marketing needs, etcetera.
Starting a business with little capital puts you in a spot where you struggle to get things done—a situation that has caused several small firms to fold up.
Statistics have shown that cash flow problems and other financial challenges account for 16 percent of start-up failures.
How can this issue be resolved?
How to Raise Startup Capital
Taking a bank loan is the most common method startup owners use to fund their businesses.
Loan statistics show that non-bank lenders currently receive 32 percent of small firm loan applications, with the remaining huge chunk going to large and small banks.
Most banks offer affordable interest rates, and you can repay your debt over a long time period.
Also, you don’t have to worry about the bank meddling in your affairs (as long as you repay your debts).
Apart from traditional bank loans, you have several other options to raise capital for your business, including:
- Venture capital
- Business incubators and accelerators
Develop a solid financing plan for your business.
Startup Challenge 3: Poor Business Planning
It’s common for inexperienced entrepreneurs to rush their startup process without proper planning. Perhaps due to the overexcitement at the prospect of being a business owner.
It’s a huge mistake because poor planning can affect various aspects of your business. For example, you’ll find yourself overspending or funding activities requiring less priority without a solid budget.
So, you’ll need to plan.
How to Plan Your Small Business for Growth
Thinking ahead and creating a plan puts you ahead of most of the competition. Studies show that businesses with plans grow 30 percent faster.
Developing effective systems is one effective way to plan your business for growth.
You need information immediately and easily accessible to compare business goals to company performance.
An effective reporting system can keep you informed and help you act quickly when necessary.
Other methods to help plan your small business for growth include:
- Set goals
- Constantly review targets
- Control costs
- Actively involve staff in business growth.
Business planning is not a walk in the park. Download this free business template to streamline your process.
Startup Challenge 4: Attracting the Right Talent
If you want a functioning business, you must discern suitable and unsuitable candidates and hire qualified ones.
About 23 percent of startups cited team dysfunction as a reason for failure.
This statistic shows that adding unqualified people to your workforce can jeopardize the entire operation because your employees might not be in sync.
How to Employ the Right People
Determining if a potential applicant fits the position you need to fill is not always best done through the traditional interview process.
Testing their skills is one way to discern if an individual qualifies for the job or not.
Sixty-four percent of recruiting managers believe that more skills testing is critical when filtering unqualified aspirants from qualified ones.
You must do more to ascertain a candidate’s compatibility with the other team members and your organization’s overall culture.
So, build a structure that lets you test how well a prospect qualifies to join your firm or not.
Your workforce plays a key role in helping your firm achieve great heights. So, ensure only the right people work for you.
Read More: How to Find and Retain Top Employees in 2022
Startup Challenge 5: Picking the Right Business Location
A terrible placement is obvious if your firm depends on location for foot traffic. A weak online presence, however, is just as risky. Nowadays, your company’s online and social media presence might be just as crucial as its location in a retail complex.
Also, ensure you have a significant online presence because analysts predict that by 2040, up to 95 percent of purchases will happen online.
So, making your company accessible online is the next crucial step. This strategy will let customers know that they can do business with you.
How to Choose Your Business Location
To effectively choose your appropriate business location, you need to decide what category your firm belongs to.
Is your business mobile, home-based, retail, or industrial-based? These are factors to consider when searching for a location to ensure you make the most of your business.
For example, if you run a manufacturing firm, you obviously need a lot of physical space and access to various amenities to boost productivity.
If you own a retail business, then you should be looking to establish a presence in shopping malls and plazas. For a home-based business, you should consider moving to a new home with more space to accommodate your business activities without interrupting your family life.
Your firm’s location isn’t just its physical position; you also need to align yourself rightly online.
Small Business Growth Challenges
One thing is to establish a business; another is growing it.
Several businesses experience stagnancy after start-up. How do you avoid this to scale your business effortlessly?
Let’s find out.
Growth Challenge 1: Dealing With Competition
While competition is crucial for growth, it can also be challenging, especially when you’re struggling to cope.
According to research, 19 percent of small businesses fail due to superior performance by competitors.
Often, your competitors have the advantage of time, resources, experience, or the workforce to push them ahead.
Such situations mean you have a lot of catching up to do. And if you’re not capable, your firm may experience stagnancy or even total collapse.
How to Deal With Competitors in Business
Did you know that 80 percent of businesses lack the necessary client information to develop successful marketing campaigns?
Most marketers are familiar with the shopping habits of their clients, which is useful information to track. However, a plethora of other information is available to help you fine-tune your marketing strategies.
Knowing your clients can help you develop a relationship with them and your business that will last longer than just a few transactions.
Many marketers fail to use the data right in front of them.
In particular, client social media activity information on client social media activity gives advertisers crucial knowledge about when customers make purchases and conduct relevant searches.
Study what competitors are doing to stand out.
Growth Challenge 2: Scaling Your Business
Statistics reveal that 70 percent of entrepreneurs find it difficult to scale their businesses; therefore, mistakes are common. By scaling your firm, you ensure a cost-effective, appropriate response to an increase in revenue, labor, or output.
Your company can grow without suffering in other areas (such as staff turnover brought on by high workloads or a product you cannot manufacture quickly enough to fulfill demand).
How to Scale Your Small Business
One way to scale your business is by identifying your ideal customer.
Finding your ideal customer takes time and can result in numerous mistakes, but this step allows your business to grow and move towards the right customers.
To begin, you must target a particular group of individuals. Working to satisfy several markets, especially when you haven’t found your footing, will most likely destabilize your firm.
So, pick a target group, understand them, and identify repeatable ways to satisfy their needs.
A staggering 80 percent of businesses assess and enhance customer experience using customer satisfaction scores.
Once you’ve identified your ideal customer, you can proceed to build a sales funnel that revolves around your business’s needs.
Also, ensure that these customers clearly understand your business benefits.
Make your communication brief, potent, attention-grabbing, and different from your competitors.
Develop a scaling strategy, and ensure your customers are at the centre of it.
Growth Challenge 3: Improving Workforce Productivity
Surprisingly, only 7 percent of workers report feeling productive at work.
Your business needs a productive workforce to experience real growth.
But that’s not enough; you need one that continuously improves. Most businesses struggle with growth because their workforce’s ability is limited to the milestones they’ve reached and can’t go further.
Improving your workforce productivity is crucial, but how can you go about it?
How to Improve Productivity in Your Workplace
The National Center for Education Statistics found that giving employees a chance for additional education is perhaps the most effective technique for enhancing employee productivity.
They believe there’s a link between businesses offering staff training and increased employee productivity. As a small business with limited resources, your best bet is to create training resources to encourage staff to learn at their pace.
Delving in blindly could be counter-productive.
Audit your employees’ skills to discover what your workforce lacks and commit resources to shore up those areas. Also, do this regularly to ensure nothing drags you behind.
Regular internal training and skill audits can improve workplace productivity.
Growth Challenge 4: Attracting and Retaining Customers
Even with attractive products and services, you won’t make any sales unless you have someone to. That’s where attracting customers comes into play.
While attracting new customers is important, retaining them is just as important.
Statistical predictions show that acquiring a new customer costs up to five times more than retaining an existing one.
So, you must learn how to attract and retain customers.
How to Attract New Customers and Retain Them
Discounts and sales are effective, like freebies; they are yet another alluring strategy for attracting and retaining customers.
Do you know that profits can rise by 25 to 95 percent with a 5 percent increase in client retention?
Customers widely perceive discounts and offers as chances to save money while enjoying a service or product.
In effect, sales and discounts encourage customers to purchase more goods and services than they originally intended.
Because the same items might not be as affordable tomorrow, customers love to “take the opportunity.” Offering specials, discounts, and sales is another effective strategy for brand promotion.
Develop customer acquisition and retention strategies for your business. Search Engine Optimization offers you a solid customer acquisition channel to build from.
Growth Challenge 5: Keeping Business Costs Low
Business costs can outweigh business resources if left unmonitored.
When the cost of running a business becomes high, the financial strain often leads to a business decline.
It doesn’t have to take a lot of time or work to cut costs in your small business and develop systems that will cost you less money over time. Making better decisions when allocating your small business resources is often the key.
How to Keep Business Costs Low
One common way to minimize business costs is to adopt modern practices because technological approaches are cheaper and more effective than traditional ones.
For example, instead of spending a lot on paper, why not take the online approach by using apps like Google Docs, Microsoft Office Word, etcetera? These application packages offer several features that can boost productivity, save time, and reduce costs.
A CBNC study shows that small company owners use mobile apps to reduce work by 725 million hours annually.
If you own a firm with branches in several locations, transportation becomes an issue, especially when it’s time for meetings. A cheaper and technological alternative is using apps like Google Meet, Zoom, Skype, etc.
High business costs often spawn from inefficient conventional practices but can be rectified by adopting newer, technology-inclined methods that aren’t just cheap and improve productivity.
Small Business Funding Challenges
Every business—small or large—depends on finances for the day-to-day running of activities. Without funds, investing in goods and services and paying workers is impossible.
But, sometimes, financial issues arise.
Let’s look at some funding challenges small businesses face daily.
Funding Challenge 1: Limited Cash Flow
Intuit Quickbooks conducted a study that showed that 32 percent of small firms worldwide can’t pay their vendors, repay outstanding debts, or pay themselves or their staff because of cash flow problems, which affect 61 percent of small enterprises globally.
A cash flow problem develops when money leaving the firm exceeds the amount of money coming in.
Even big companies experience cash flow problems, but how can we address them?
How to Improve Business Cash Flow
Expenses, such as unused office space, accumulated unsold goods, and pricey employee phone subscriptions, to mention a few, may gradually drain your business funds. Even if each purchase is minor, they can significantly reduce your cash flow when added together.
You can block cash leaks at their source by creating time for corporate expenditure control and eliminating wasteful spending. Also, calculate your yearly spending and cut back on some expenses during seasons when they are not necessary to keep the firm running.
Cutting costs is a simple but effective method of improving business cash flow.
Funding Challenge 2: Lack of SMB Financing Options Knowledge
Starting your own business is challenging yet rewarding. While having a solid business strategy helps, funding is one of the most significant components a company needs to flourish.
With several SMB funding options available for individuals with poor credit, it’ll be a hindrance if they do not know of them.
Thus, business owners are left to manage their firms with little or no money.
Funding Options For Small Businesses
Venture capital is one of the options entrepreneurs turn to for business funding.
For better understanding, venture capitalists (VCs) are an external group that acquires a stake in a firm in return for funding.
The company’s valuation often determines the ownership to capital ratios, which vary.
According to Sandra Serkes, CEO of Valora Technologies, “This is an excellent option for companies who don’t have tangible assets to use as a lien to loan against for a bank.”
“It is only a fit when the firm displays a high growth potential and a certain level of competitive edge such as a patent or captive consumer.” she continued.
Apart from venture capital, small businesses have several other funding options to choose from, including crowdfunding, and government grants, among others.
Funding Challenge 3: Poor Credit Scores
According to the NSBA Small Company Access to Capital Study, business credit is the reason for 20 percent of small business loan denials.
A new firm’s credit rating is perhaps one of its most crucial aspects. A startup that works to raise its credit rating will flourish in the long run.
So, having poor credit can ruin your chances of getting a loan.
How to Improve Poor Credit Score
According to the Federal Reserve, 50 percent of lenders use the owner’s personal credit score, and 13 percent use their company score, with 37 percent reviewing both numbers.
Pay your bills on time. Although following this advice seems obvious, it’s possible to become preoccupied with daily obligations and neglect bookkeeping duties.
Create a sound system, and pay close attention to timeliness. You lose points for late payments.
Always pay bills on time to ensure you maintain good credit.
Funding Challenge 4: Poor Financial Reporting
Small businesses must document every financial transaction, including sales, costs, and earnings.
Private businesses aren’t obligated to submit financial reports, yet careless record keeping might result in significant issues.
Incorrect tax deductions and overstating income on tax forms can result in penalties, interest fees, or even jail time.
For publicly traded firms, failing to publish financial information or filing false reports may result in losses and more time spent attempting to solve problems.
How to Solve Small Business Financial Reporting Challenges
Inaccurate data influences more than just a company’s financial statements.
Association for Federal enterprise risk management (AFERM) conducted a study in which 41 percent of the survey respondents said inaccurate financial reports had hampered their ability to secure finance, reducing their growth potential.
An equal percentage of respondents from the same survey stated that most of these mistakes were due to human error.
To avoid such situations in your business, use software packages like Quickbooks to help you organize your data while facilitating stress-free invoice monitoring.
You can also outsource accounting help if you’d rather let a trained professional handle all your financial reports.
Seek effective means to tackle financial reporting problems.
Funding Challenge 5: Too Much Debt
Business owners are fairly uncommon to incur debt while starting their enterprises since entrepreneurs are justifiably proud of having “bootstrapped” their way to success.
Nevertheless, the problem of excessive commercial debt does exist.
Possible situations include accumulating debt on a personal credit card or even exhausting a line of credit issued by your local bank that charges a high-interest rate.
Studies show that 27 percent of small firms that don’t require advance payments have taken out loans or used credit to pay suppliers and employees out of compulsion.
Rest assured, there are solutions.
How to Manage Your Small Business Debts
List every debt you have and the recipients of each payment.
Note the total amount you owe each creditor, including any applicable interest, and the monthly payment schedule. Now enter everything into a spreadsheet.
Sort your debts according to their interest rate and the number of payments due each month.
Now, you can decide which debts to settle first.
The choice of dealing with the smallest or largest debt first is entirely up to you.
A small business loan typically has an interest rate between 2.54 percent and 7.01 percent.
So, you can decide to pay off the loans with the lowest interest rates first, followed by the ones with the highest interest rates. Some individuals reverse the process.
Choose a course of action, follow it, and, if necessary, discuss it with your creditors.
For effective debt management, you must record everything you owe so you know what payments to tackle first and how to tackle them in the best possible way.
Navigating Your Small Business Challenges in 2022
Starting a business is not a walk in the park.
And it’s also not for the faint-hearted. Launching without planning for challenges is a sure way to fail. I guess you don’t want that. You’ll also face several obstacles while growing the business or seeking funding to scale operations. Having contingency plans makes you less vulnerable.
Thankfully, this article can put you on the right footing.
Action the tips here to build your contingency plan. It covers everything you need to navigate the top small business challenges in 2022 to put your business on the path to growth.
You can email us if you need help implementing any of the tips.