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Small Business Study: Lifetime Changes in Small Businesses Challenges

More than half of all American small businesses are less than ten years old. While ten years may not sound like a long time in terms of a career span, a single decade can bring about huge amounts of growth and development for a small business. And, not surprisingly, with different stages of growth come changes in small business challenges.

As a part of Guidant’s 2019 State of Small Business survey launched in partnership with online lending marketplace LendingClub, more than 2,700 current and aspiring business owners responded to questions about obstacles they’ve faced along the small business journey.

Here’s a closer look at the challenges facing small business owners over the lifetime of their business journey.

The Single Biggest Lifetime Business Challenge: Cash

Ask any business owner what the one thing they need to for their business is, and you’ll likely hear, “more money.” The data collected in our small business study looked at the top challenges faced by companies that have been in business for under three years, from four to seven years, from eight to nine years, and for over ten years. The most highly reported challenge was a lack of capital and/or cash flow across the board for all businesses. Sixty-nine percent of businesses in operation for under a year to three years reported lack of cash as their top problem. Every cohort had over 60 percent of business owners placing cash as their top challenge.

What many aspiring business owners need to keep in mind is that how they finance their business will have long-term effects on their company’s cash flow.

Every cohort had over 60 percent of business owners placing cash as their top challenge.

Starting with equity-based financing such as Rollovers for Business Start-ups (ROBS) can allow business owners to avoid or drastically lower monthly loan payments.

New Business Owners Struggle with Marketing and Advertising Efforts

Building a loyal audience base, spreading the word about your products and services, and establishing a recognizable brand all come with a monetary cost — a huge challenge for business owners who are starting from scratch. Early-stage business owners (from under one year to three years in operation) reported marketing and advertising efforts as their second biggest challenge behind cash flow. The category also showed up as a top challenge facing small businesses that were eight to nine years in operation, with just over 34 percent of business owners in that group reporting marketing as a challenge. The rate of business owners who felt marketing was a major business hurdle dropped drastically for businesses that have been operating for ten or more years — when a foundation for marketing efforts are most likely already in place.

It’s not surprising business owners starting their companies from scratch are focused on marketing, but these challenges do ebb and flow based on the company’s growth stage. Fortunately, there are steps companies at any stage can take to focus their marketing efforts and reduce the time and money spent on advertising.

When building a marketing program from the ground up, it’s a good idea for business leaders to begin by establishing large-scale business goals and continuously tying all marketing efforts back to those goals. For example, if a company is focused on retaining customers already using their product, it’s essential to build content and communication channels that nurture the relationships with those customers.

Early-stage business owners reported marketing and advertising efforts as their second biggest challenge.

If the company has a goal of acquiring new customers, it’s likely more important to focus on efforts that expand the reach and recognition of the company’s brand. Small business owners should keep in mind these marketing efforts will show a great return on investment when time and effort have been spent accurately defining their target market and creating unique audience personas.

Administrative Duties Pose an Unnecessary Burden

Another challenge for small business owners that seems to decrease over the lifetime of the business is administrative duties such as bookkeeping or payroll. Just under 30 percent of business owners who’ve had their doors open for less than three years reported administrative duties as a major challenge they face, which was the third-highest reported challenge for this group. Almost 30 percent of business owners with a bit more experience, in the four to 7-year group, also reported this as a challenge, but with several other issues ranking as more difficult. The number of business owners who felt administrative duties were a top challenge dropped significantly for businesses in operation for over eight years.

It’s common for businesses to feel more in control of their administrative duties the longer they’ve been around. And it makes sense — often early-stage business owners are trying to tackle everything themselves from managing payroll to keeping track of all the books. More seasoned business owners are likely to have hired someone to take care of these tasks for them.

Tailored Funding Options for You

What many first-time small business owners fail to realize is that investing in payroll and bookkeeping solutions in the early days of business can save a lot of time, money, and headaches down the road. Even in businesses where the owner is the only employee, there’s still a lot to manage.

Each year, the IRS assesses millions of dollars in penalties against business income filers for errors in bookkeeping and payroll — miscalculating employee taxes, missing a payment, and paying late can all add up to much more than the cost of paying for a payroll and bookkeeping service. Online, user-friendly solutions like ADP and Paychex for payroll and Intuit’s QuickBooks are designed to adapt to all sizes of businesses. As more business owners decide to make the early investment in these products, the burden of administrative tasks should become a less significant lifetime business challenge.

Recruiting Top Talent Proves a Struggle in a Strong Economy

With the U.S. unemployment rates hovering around all-time lows, it’s becoming more challenging for businesses to find and retain great employees. Our small business study indicated this is less of an issue for new business owners. About 24 percent of business owners in this group reported recruiting and retaining employees as a major challenge. But hiring was the second-highest reported challenge for business owners who have been operating for ten or more years — almost 30 percent of people in the group indicated it was a top issue.

Many business owners don’t hire anyone to join their team for a several years permanently, and for a good reason — hiring employees is expensive. Studies have shown that, depending on role, it can take an employee anywhere from eight to 26 weeks to reach their full productivity. And due to that learning curve, new employees end up costing the business between one percent and 1.25 percent of revenue. Taking all this into account, both new and seasoned small business owners need to focus on reducing the cost of hiring new employees. But how is this possible while growing a business?

Often, the upfront cost of contracting with a recruiter to handle the bulk of sourcing qualified applicants is a better investment for business owners than spending the time to do it themselves. A recent LinkedIn small business hiring study found that 84 percent of companies who engaged external recruiters made a hire, and with very high satisfaction rates.

Hiring was the second-highest reported challenge for business owners who have been operating for ten+ years. Almost 30 percent of people in the group indicated it was a top issue.

Business owners can also save time and money by working with contractors or third parties to complete tasks on a project basis rather than hiring full-time employees. This is an extremely effective approach for growing small businesses that don’t need or can’t afford a permanent hire. Whether contracting with a marketing agency to relaunch the company website or paying a virtual administrative assistant to stay organized — business owners can work with seasoned professionals without going through the hiring process. The initial cost is steep, but the money saved in recruiting and retaining a team or even one person is saved. And the work is completed by experienced professionals — all with less of an investment from the business owner.

Managing and Providing Benefits May Become a Bigger Challenge

The number of entrepreneurs who reported managing and providing benefits as a major business challenge followed a very similar pattern to those who reported hiring and recruiting as an issue — the longer someone has been in business, the more of a challenge it becomes. This makes sense since managing benefits is only relevant when there are employees to manage.

However, not nearly as many small business owners saw this as a top challenge. Those who have been operating their business for ten or more years were the largest group, at 13.5 percent. Only 11 percent of business owners with less than three percent saw this as a major challenge. In many cases, small businesses don’t offer benefits — either they feel it’s too expensive, or their part-time staff members don’t qualify. However, this could change, posing a greater challenge for small business owners.

In major metropolitan areas, it’s becoming more common to see locally mandated employee benefit requirements. For example, Seattle’s Sick and Safe Time Ordinance requires all Seattle employees to provide paid sick leave for employees. And in Los Angeles, employees working within city limits may soon receive 18 weeks of paid parental leave. Though these programs certainly have the potential to help boost the economy and help employers retain employees facing health and childcare challenges, these kinds of changes will likely mean more benefit administration duties for business owners.

All Entrepreneurs Need More Time in Their Day

A consistent challenge facing small businesses throughout their business’s lifetime is time management. The group with the lowest instance of reporting time management as an issue was new business owners with three or fewer years of experience. This could be for several reasons — either business hasn’t picked up speed yet, things are so busy it’s hard to notice time management is an issue, or new business owners may simply by running on adrenaline.

With just a few more years of experience, business owners who’ve been operating for four to seven years are certainly feeling the pressures of time management. Time management was the second-highest reported business challenge for this group at over 29 percent. Because businesses at this stage are typically more likely to be growing quickly and hiring a larger team, entrepreneurs may be spending more of their time on personnel or acquiring more capital than on actual business operations.

Investing Early in Support for Small Business

Even though the top lifetime challenges faced by business owners change over time, they all have two things in common: time and money. In most instances, business owners are trying to tackle challenges themselves to save money, and it causes a shortage of time. Small business owners spend up to 40 percent of their time on tasks that don’t generate income, such as hiring. Reclaiming that time by investing early in software and relying on third-party providers for essential business needs will make time for entrepreneurs to focus on their areas of expertise, which is essential for company growth.

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