Small business owners face hurdles on the course to success. Learn how to overcome 9 of the top common small business challenges. 

Financing Problems Faced by Small Businesses

The life of a business depends on cash flow, making financial management one of the top challenges for small businesses. Finding cash, managing it and keeping track of it all are among the problems small business owners face.

1. Finding Financing

You need money to make money, and finding financing to survive the start-up phase can be one of the biggest challenges for small businesses. Federal Reserve data analyzed by Harvard Business School revealed 43% of small business owners who seek financing either receive no funding or only some of the capital requested. An underlying issue is a lack of understanding of how your business credit score can impact your loan application.

Just as you have a personal credit score, your business has a credit score as well. The major business credit-rating firms are Dun & Bradstreet, Equifax and Experian. Each uses a scale of 0 to 100 to measure your score.

FICO’s Small Business Scoring Service

FICO, which also tracks personal credit, provides a Small Business Scoring Service (FICO SBSS) to help lenders evaluate loan applicants using a scale of 0 to 300.

To qualify for an SBA loan, you need a minimum SBSS score of 140, but a higher score will improve your odds. You can improve your SBSS score by:

  • Improving your personal credit score, which factors into your SBSS score
  • Using a business credit card to pay for business expenses
  • Applying for a Dun & Bradstreet D-U-N-S number, which can be used to track your business credit score

2. Small Business Cash-Flow Problems

After you’ve found financing for your business, managing your cash can be equally challenging. Payment software provider WePay found 41% of U.S. small businesses struggle with cash flow problems on an annual basis.

It’s important to take steps to avoid cash-flow crunches:

  • Track your cash flow. Use cash-flow statements so you know how much money is coming in and going out at any given time.
  • Make realistic sales projections based on past performance, not wishful thinking.
  • Proactively collect accounts receivable you’re owed by customers.
  • Minimize expenses whenever possible through strategies such as outsourcing and automation.
  • Keep enough emergency funds available to cover your expenses for a few months during a cash slowdown.

Use cash-flow statements so you know how much money is coming in and going out at any given time.

3. Combining Business and Personal Finances

Cash flow crunches can also emerge from mixing business and personal finances. This makes it easy to accidentally spend money your business needs on personal expenses, and harder to track how much money your business has and how much you’re spending.

You can keep your business and personal finances separate by following some simple strategies:

  • Create separate accounting spreadsheets for your personal and business finances (or make your personal expenses a separate line item you can easily track separately).
  • Use a separate storage system for business financial paperwork.
  • Create separate business checking and credit card accounts — and use them exclusively for business items.
  • Set a salary ceiling for yourself and stick to it.

Growth Challenges for Small Businesses

Other top small business issues revolve around growing your business through marketing and sales. Generating revenue, finding new customers and keeping existing ones can all be major challenges.

4. Generating Sales

Business success depends on sales revenue, but many small businesses fall short of their sales goals. About 42% of sales representatives make their sales quotas, according to SalesForce.

Fundamental strategies for improving your sales results include:

  • Setting measurable sales goals and tracking your team’s performance with analytics tools
  • Standardizing your sales process so that your sales representatives know what steps to take to generate sales
  • Using sales scripts so your sales representatives know what to say to probe for customer needs, present product benefits, close sales and answer objections
  • Using sales automation tools such as software for customer-relationship management
  • Scheduling lead generation and sales appointment activity to ensure that your team is taking enough action to achieve the desired results

5. Acquiring New Customers

To meet your sales goals, you need to connect with a sufficient number of prospects. Many companies fall short on this front. For most organizations, less than a third of revenue comes from new customer accounts, according to a study by Miller Heiman Group, a provider of sales-training programs.

To draw more new customers, consider:

  • Increasing online marketing activity to increase your social media following and drive more traffic to your website
  • Encouraging social media followers and website visitors to follow you and sign up for your email list so you can pursue follow-up marketing efforts with them
  • Creating compelling sales offers
  • Testing which marketing and sales campaigns generate the best results

6. Customer Retention

It’s less expensive to keep your current customers than to gain new ones, making repeat sales one of the most cost-efficient marketing strategies. Many companies lose a significant number of their customers a year (referred to as the churn rate), making customer retention a perennial challenge.

You can retain more customers by adopting strategies such as:

  • Offering superior customer service by leveraging technology such as chatbots and interactive voice response to reduce customer wait time
  • Measuring customer service performance by tracking variables such as average call wait time
  • Soliciting and tracking customer feedback
  • Periodically extending special offers to current and past customers
  • Offering loyalty reward discounts and incentives to regular customers

Consider offering loyalty reward discounts and incentives to regular customers.

Technology Challenges for Small Business

In today’s high-tech environment, an increasing number of small business problems involve technology. Among these are automation, the need to maintain an online presence and the challenge of keeping up with digital security threats.

7. Automating Business Processes

Automation can help companies save time, increase efficiency and cut costs. However, many businesses find automating their business processes challenging. A study by Apple subsidiary FileMaker found 96% of companies struggle with technology for automating business processes.

To make automation easier, follow a step-by-step approach:

  • Establish who in your organization or your outsourcing network will be responsible for handling automation.
  • Review your business processes and identify repetitive, routine tasks that can be automated, such as:
    • Updating your bookkeeping records
    • Publishing content to social media
    • Handling routine customer service inquiries
  • Set measurable goals for what you’d like to accomplish through automation, such as how much time you’d like to save on specific processes.
  • Establish key performance indicators to measure and track these goals.
  • Compare solutions and choose the best tools to achieve your goals.
  • Schedule a phased timetable for implementing new solutions, testing on a small scale before rolling out organization-wide or on a customer-facing interface.
  • Codify standard operating procedures for using new technology tools, and train relevant staff in these procedures.
  • Track your implementation results with analytics software.

8. Maintaining an Online Presence

With online retail sales becoming an increasingly significant revenue source, having a digital presence has become increasingly critical to compete for customers. But 40% of small businesses still don’t operate a website, according to a survey by Visual Objects, which runs a site showcasing work from creative firms. Concerns about cost top the list of reasons why companies don’t have websites.

Most businesses spend less than $1,000 on setting up a website, and there are solutions available for all price points:

  • If you’re on a shoestring budget, do-it-yourself solutions such as Blogger, WordPress.com and Wix.com are available.
  • If you can afford between $1,000 and $10,000, the least expensive route is hiring a freelancer to build a website or blog.
  • If you need a more robust, customized solution or don’t want to manage your own site, you can hire a web design agency or full-service digital agency.

9. Managing Digital Security

Security presents an increasing challenge for small businesses. Cyberthieves now aim 43% of their attacks at small businesses, according to a report by Verizon. More than two-thirds of small and midsize businesses experienced cyberattacks in a 12-month period, according to a November 2018 study by research organization Ponemon Institute.

To protect your company from online predators, it’s important to follow digital security best practices. These include:

  • Enabling a firewall to prevent unauthorized users from accessing your company’s network
  • Using strong passwords with at least 10 characters and a mix of capital and small letters, numbers and punctuation, supplemented when possible by multifactor authentication, such as a personal Identification number sent through an authentication email
  • Using a secure connection, such as an encrypted virtual private network, when connecting to the internet rather than an insecure connection, such as a public Wi-Fi server
  • Keeping operating systems and software apps up-to-date to incorporate the latest security fixes
  • Running an antivirus program on company devices
  • Avoiding suspicious links or email attachments
  • Using spam filters to block suspicious email
  • Backing up files regularly so you can recover in the event of a cyberattack that blocks access to your files
  • Requiring workers to use secure mobile devices and apps as well as enabling remote file wipe capability for company files in the event a device gets compromised
  • Training workers to follow cybersecurity procedures

Overcome Business Obstacles with Smart Strategies

While potential obstacles to business success are numerous, determined entrepreneurs can overcome them by pursuing smart strategies. In many cases, overcoming business obstacles will require investing capital. If you need financing to achieve your business goals, be sure to check out Fast Capital 360’s funding options.