ONS data shows that, across the UK, less than 45% of businesses typically survive into their 5th year. In this harsh business environment, knowing the challenges you’re up against might just be the key to your success. Here we share four common challenges that businesses face, including:
- Funding: securing and managing it
- Finding customers
- Staying profitable
If you’re just about to start a new business venture, find out how you can keep an early eye on your business’ future in this article.
Funding: securing and managing it
The first significant hurdle for many small businesses is securing funding.
With cash available from lenders or investors, small businesses are able to get established and begin trading with ease. However, there can be a number of barriers to accessing these necessary funds.
Without existing assets to secure loans to, more cautious lenders will struggle to take risks. Similarly, if you’re a new business owner with a poorer credit history, lenders may be hesitant to provide capital.
If this is a problem you face, it’s important to know you have options. Other funding sources from a variety of lenders and investors exist, including government-backed loan schemes, business loans from other private lenders, and investors who may seek to buy shares.
A secondary option to pursue is giving evidence that you’re competent and safe with money. By communicating your business’ value and safety in returning debt/investment well, you can instil confidence in lenders or investors as they consider your business.
Even after you’ve acquired funding, being able to manage it can still be the early downfall of many new business owners. Whether this is from a shortfall in awareness of industry-associated costs, or a lack of budgeting ability more generally, budgeting and bookkeeping is an important skill for any business.
You can overcome this problem by having an accurate business plan and budget. Read more in our articles Why is Budgeting Important to Small Businesses and How to Budget for Starting a Business to learn more and solve these problems.
As a new small business, you’re unknown to many people.
Existing organisations in your industry often benefit from having an established brand and product awareness which puts them at an early advantage. For this reason, small businesses struggle in attracting customers sustainably.
While giveaways and cheap deals can be good ways to introduce your business to new customers, translating this to repeat visits can be hard. Small businesses can look to overcome this in two ways: strong marketing and customer feedback.
Marketing your business doesn’t have to involve flashy video sequences with big budgets. While they do often help, targeted advertising and more organic customer relationships can be a great way to appeal to customers.
Targeted advertising involves sharing your advertisements with more precision. Online advertising platforms like Facebook, Google and Amazon collect user data that allows businesses to find customers interested in their products. We have guides available to help you market your business including How to Advertise a Small Local Business and How to Use Social Media for Business.
The other route to finding customers is to listen to the ones you already have.
Knowing what your customers think of your product or service is key to making sure you’re providing what they need and want. Without this insight, any inherent attraction customers may have for your product from your effective marketing may be lost when they actually use your service or make a purchase.
If it breaks easily, takes too long to use or doesn’t fully solve the problem you say it does, then customers won’t bother coming back. That’s why being mindful of customer input and continuing to develop what you offer can help you make sure customers stay interested.
During the earliest stages of business, sales can be unreliable and an initial business milestone is simply to turn a profit. Unfortunately, maintaining this newfound stability while continuing growth is an ongoing challenge for every business. Small businesses run into issues with their profit in two main ways: expansion and operations.
Expanding too early or too fast can mean stretching your resources too thinly. For example, tying funds up in inventory that can’t sell or rushing to hire a team of staff. As we discussed in the first section of this article, managing your funding effectively is crucial for your business’ long-term viability.
While it’s understandable that some businesses need or want to rush to market if they are to be profitable in their industry, rapid expansion invites problems that need time and expertise to fix. If you’re entirely new to the world of business, expansion should be taken carefully if not always slowly.
Importantly, expansion is still a problem faced by businesses with relatively slower growth as some operational processes are only viable at certain points in a business’ life. Critically, the operations that were once profitable for you may no longer service your new expenses as you expand. For example, the difference in profit between selling goods that are handmade using a small team versus those made with expensive warehouse machinery.
Balancing long-term growth with short-term profitability can mean prioritising two opposing forces. While your operations and business strategy doesn’t always have to prioritise profitability, it needs to feature at points if you’re to successfully attract lenders and investors as you grow.
You can read more about strategies to stay profitable in our articles What is Net Profit? and What is Cash Flow? Understand Your Money.
This challenge for businesses is perhaps the easiest to understand: competition from other businesses is a major issue because you can’t control it.
As you run your business, you’ll be faced with other organisations able to lower their profits, improve their customer service, add value or innovate their offerings. Keeping pace or managing to stay ahead of the competition is crucial as you operate. That’s why regularly reviewing your strategy and expenses is a must for any long-term and viable business.
Overcome these challenges using Countingup
While Countingup can’t run your entire business, we can handle your financial admin for you.
Countingup is the business current account and accounting software in one simple app, and it makes keeping on top of your finances simple.
The app provides receipt capture reminders, instant invoicing and accurate tax estimates meaning you can have complete confidence in your books as you trade.
If you’d like to know more about how Countingup can help run your financial admin, find out more here.