Challenges that small businesses face.
It is estimated that less than half of newly established businesses survive beyond five years.
This is a worldwide phenomenon, and is no less true in South Africa. Is your business now doomed? Not necessarily, knowledge is power and we highlight some of the challenges that your business may face.
- Client dependence
There is an inherent risk in your business if most of your income stream is generated from a singular client. If the client decides to leave or defaults on payment, you will still have the obligation to pay all your expenses, whether it be rental, employees or the sort. Although not easy, diversifying your client network is essential for your business to grow and to ensure the safety of continuity of your business.
- Owner dependence
If you get injured or hurt and are unable to work for 6 months, will your business still be able to generate income? Delegation and letting go of some responsibilities is key. It is human nature to, rather than compromise on quality, do it yourself until someone else has learnt to do it to your standards. However, keeping all the control to yourself will eventually hamper the growth of the company and individuals that work there.
- Cash flows
A business is only as healthy as its cash flow. There are times when the business may have to outlay for a capital investment, for example machinery, or for an unexpected expense. If you find yourself often panicking about how you are going to meet your obligations, the problem might become one from which you will not recover.
The main reasons for cash flow problems are:
- Pricing products and services too low;
- Expenses exceeding income;
- Paying Bills Early – bills must be paid on time but cash flow budgets should be drawn up;
- Offering too many customer discounts;
- Poor collection methods and efforts on customer accounts.
Money management is extremely important and, although some business owners may be capable in handling accounting and taxes, professional help is usually a good idea. The complexity of the books of a business grows with each client and employee, so ensure that you employ a qualified financial person to lead your business in the right direction.
- Human resources
A problem facing many companies today, big or small, is finding good, reliable and competent employees. With the growing unemployment rate, there are many opportunists out in the job market. Do your research on recruitment agents, there are a lot that love “window dressing” candidates to make them seem better than they actually are. Discuss recruitment with fellow business owners to get new ideas of attracting talent and have a presence on the web. Also consider investing in psychometric tests after all, competence is one thing but working well within the team is also important.
Owners usually get stuck working the long hours and feel the most pressure out of anyone in the business. We understand that it’s your company, your baby, and that you need to nourish and invest time in it to grow, but if you’re neglecting yourself, your family and friends, and if you’re avoiding going on any extended breaks, you will burn out at some stage. Make an effort to find that life vs work balance again. If you not going to look after yourself, then who will?
- Knowing your customer
A lot of business owners do not know who their target market. This becomes problematic when they try to position themselves within the market or if they start up a business out of interest, without understanding the real need within the market. Identify the services or products you want to offer and decide on what type of customer you want to attract, you can then create a clear path on how to go about attracting that type of customer.
The above challenges are, by no means, insurmountable. One of the worst things a business owner can do is naively start a business without considering the challenges that face him or her. An important step in overcoming a challenge is to acknowledge that the challenge does exist and be attentive in this forever changing market. Plan ahead, create networks and face those challenges head on!