A small business is a dream for many people, offering independence, autonomy, and creativity. The fact is, some small businesses always thrive, no matter the climate and outlook. The key is setting up systems so your business can be successful, too.
The year 2020 and the following Great Resignation have reinforced a constant in small business life: the need to be nimble and adapt to business conditions in order to succeed. That’s why it’s important as ever to review the most common small business challenges and, most crucially, to strategize methods of overcoming them. An organized and prepared business owner who knows about potential challenges is far more likely to meet them productively than someone who isn’t aware of them.
Here are the common challenges we identified in our 2022 Small Business Trends. This annual survey is spearheaded by Guidant to support small businesses with data trends and insights.
1. Recruitment, Retention of Employees, and Labor Quality
Challenges in labor quality, including employee recruitment and retention were cited by 55% of small business owners, making it the largest challenge. For the first time ever, lack of capital was pushed from its top spot as the number one small business challenge.
When the 2021 Small Business Trends Survey was compiled, the unemployment rate was at the lowest level in a half-century. Strong employment can make it hard to recruit and retain – which explains why the share of small businesspeople citing recruiting and retention as a challenge rose 22% year over year. In 2022, this trend has continued with labor shortages everywhere, from your neighborhood coffee shop to larger factories in cities. The Great Resignation has put an exclamation point on this decade’s employment challenges.
While there may be more people not working and thus in the labor pool, it is still highly important to take the time to recruit effectively and make sure you choose the right person. Remember, your employees highly influence your customer service. Hiring mistakes are costly; turnover costs even for lower-level employees can be roughly $3,500 It is also very important to retain employees once you’ve hired and trained them. Employees leaving can drain your productivity in two ways: you lose their productivity, and your own is sapped by the time needed to recruit a replacement.
If you’re a small business struggling with employment, make a goal for what you want. Take the time to think through what role a new employee should play, and what skills and capabilities they need to bring to the table. Develop a job description that will attract people with those skills and capabilities.
Yes, small businesses often require employees to wear many different hats. But you have to start with a clear vision, or your recruitment efforts may descend into chaos. Hire for the role you most need right now. If the new hire can grow, fine. Concentrate on essential coverage first.
Then, make sure the salary and benefits you offer are competitive within your industry. To attract top people, you need to be competitive. Word of mouth about your salary and benefits can spread within the industry. If your rates are competitive, your recruitment efforts will be enhanced. If they’re not, your recruitment effort may become more difficult and your job openings may sit open.
Competitive salary and benefits are also a key retention strategy. In fact, 63% of small business owners increased compensation in 2022 to combat hiring difficulties. Make yours a good place to work by offering them. The cost of health insurance plans is a big factor for many seeking employment, so make sure your benefits are robust, if possible.
Employees also like to feel valued and appreciated, and if they do they develop the loyalty that drives good retention rates. Institute employee appreciation strategies, such as employee of the month or gift card rewards, if appropriate. Take the time to develop promotional paths for top employees, so they will benefit from company growth.
2. Changing Operations in Response to the Market Conditions
The second most common challenge in 2022 has been supply chain disruption. The National Federation of Independent Businesses now reports that a whopping 40% of businesses have been significantly impacted.
There have also been significant price hikes as a result of increasing inflation. And though the Fed is combating inflation by increasing interest rates, many small business owners find the new interest rates just as grim a reality.
Solution: Diversify and Optimize
Smart business planning is the key to staying afloat during fluctuating market conditions.
Forbes recommends that tackle supply chain issues by increasing your inventory whenever possible, optimizing your supply chain as it is now, and being up front about difficulties with your customers.
Solution: Changing Your Model
You can also change your business model, or how you provide products to customers while maintaining the fundamental customer experience. Restaurants and pet food and toy suppliers, for instance, are succeeding during the pandemic by switching their delivery methods. Rather than customers coming to them, they are delivering to customers.
Moving products and services online is another potentially robust strategy. Businesses from children’s entertainment to yoga studios are finding success with online offerings.
Second, focus on what customers need. Consumers will always continue to purchase what they must have, such as food, medicine, and healthcare needs. Businesses can capitalize on those needs. Some alcohol distilleries, for example, are retooling to make hand sanitizer, and clothing manufacturers are producing medical masks. Allow customer feedback to guide your decisions.
3. Lack of Capital/Cash Flow
The third-biggest challenge faced by small businesses in 2022 Small Business Trends was a lack of capital/cash flow (31%).
Having limited resources as a small business owner is the rule, not the exception. Capital and cash flow are the lifeblood of a business, providing both operating cash and room to expand and innovate. A lack of them poses an immediate threat to the survival of a business.
Solution: Obtaining Funding
Many entrepreneurs think of loans and other funding methods when considering their access to capital and cash flow needs. But loans can be hard to get in every business climate. Loans guaranteed by the Small Business Administration (SBA) can be a bit easier to get, but the percentage of loans approved is still relatively low and is influenced by where you live, the industry you’re looking to enter, and whether you have previous business experience.
Fortunately, there are multiple funding solutions in today’s climate. It’s often possible to access existing resources. Rollovers as Business Startups, or ROBS, for example, allows you to access 401(k) and other retirement funds, which is why it is also known as 401(k) business funding. Home Equity Lines of Credit, or HELOCs, access existing equity in a home.
Solution: Managing Your Capital and Cash Flow
Are business challenges preventing you from meeting your capital and cash flow needs? Here, too, there are multiple solutions. First, remember that it’s always important to assess your own sector and industry. Even in an economic downturn, many sectors thrive. Healthcare, food, and delivery of essential products, for example, will likely be strong. If you’re in these sectors, strategize methods to capture and increase business. If you’re planning a business venture, focus on recession-proof sectors. If your assessment indicates that your business will be negatively affected, however, it’s time to get creative. Can your business be retooled and revamped to meet the challenges of uncertainty with the COVID-19 pandemic?
Finally, manage your cash flow judiciously for business success. This can be a challenge for business owners, but you don’t know what the future business conditions will be so it’s best to have a cushion of cash reserves. Review and revise your product line to concentrate only on what’s most successful. Assess whether you can reduce staff, real estate overhead, and other expenses.
The fourth-largest small business problem (23.25%) is administration work. This includes bookkeeping, payroll, and so forth.
Failing to do these functions adequately can cause problems. Bookkeeping, or keeping track of costs, payments, purchases, and sales, is necessary but time-consuming and potentially complicated. Unfortunately, it’s a crucial function in keeping cash flowing. Without adequate bookkeeping, your business can dry up.
Payroll can be even more complicated. Business owners need to keep abreast of Federal, state, and local taxes to make sure they withhold taxes correctly. They also need to comply with other withholding requirements, such as those for Social Security, Medicare, workers’ compensation, unemployment insurance, and so on.
If a business offers 401(k) payroll deductions, the deductions must be in employee accounts within a specific time period, or the business can be penalized. You can also be the target of Internal Revenue Service (IRS) fines and penalties for failing to pay the right amount of taxes, underpayment, or late payment.
Issues with administrative tasks can also lead to (or stem from) problems in other areas, such as recruitment and time management.
Fortunately, solutions are available. The simplest may be to outsource one or both functions, depending on your needs. Hiring personnel to do bookkeeping or payroll is one option.
A less time-consuming and less expensive option is to use widely available solutions. For bookkeeping, many services exist that will scale their services to your needs relatively inexpensively. They provide accounting, expense management, monthly reconciliation, financial statements, and more.
Many payroll services will do the same, providing payroll processing, withholding services, payment methods to employees (such as direct deposit and cutting checks), and more.
Payroll services offer robust packages that can solve other problems for you. Many offer, for example, human resources (HR)-related functions, such as time-keeping assistance, job description templates, and access to online recruiting services. A payroll services provider can offer assistance in corporate compliance as well, such as assistance with employee handbooks and online sexual harassment training.
Check out Guidant’s Small Business Services to learn more.
5. Time Management
Business owners are always pressed for time. It’s the fifth-largest challenge at 21%, and it’s easy to see why.
Running a business demands multiple sets of expertise and activities throughout every area of the business. In a small company, you may be the CEO in the morning, setting the strategy and the long-term course for the ship. In mid-day, you’re a product developer, reviewing sales figures for the most recent product offering. In the afternoon, you’re contacting customers, and later, managing payroll and benefits.
You need to constantly juxtapose long-term goals like realizing your strategy with short-term goals, like meeting payroll. Blend the interruptive nature of business life into that mix – phone calls, e-mails, and conferences, to name just three – and it’s no surprise that time is one of the most important business commodities.
Solution: Active Time Management Solutions
Active time management solutions are important. First, know your primary goals for the business. Your goals should be SMART:
Second, prioritize tasks by linking them to your goals. A to-do list is a useful method of prioritization. Jot down everything you need to do. (It’s very important to have these in written form, by the way. Don’t just keep lists in your head.) Then assign them priority by their importance to company goals and by the time in which you need to do them.
Break long-term goals into specific tasks, and assign them a time frame. If you need to hire a new employee by the beginning of next quarter, for example, the individual steps could be writing a job description, posting the job, reviewing resumes, performing background checks, interviewing several people, and making a choice. Set a realistic time for the completion of each individual task.
Work through your to-do list by priority. Carry over tasks left undone and don’t stress when there are tasks left undone. Uncompleted tasks will exist; it’s part of the nature of business.
Third, after several weeks, analyze your time management, using your to-do lists.
Is there a set of tasks consistently not getting done? If so, consider relevant solutions. You may need to delegate some tasks to existing employees or hire new personnel. You may want to hire contractors in certain areas, such as taxes or creative work like marketing or advertising. If the areas not getting done can be automated, such as payroll or onboarding new employees, consider automating them. This can even help with future business growth, and generate new business ideas and business insights.
Solution: Book Time Just for You
Are the problems stemming from constant interruptions? Make it a practice to book some time clearly just only for you. It could be the first hours in the morning or late at night; whichever works best for your schedule. Enforce the lack of interruptions. Do not answer e-mails or texts. Do not answer the phone. Do not give an impromptu management-employee meeting.
Frankly, if you are consistently not getting to certain tasks, assess whether they are necessary. Have you wanted to check out new office locations or buy new equipment, for example, but never seem to marshal the time needed? Think about undertaking them during slower times of the year.
Finally, assess whether you are performing activities in the most efficient way possible. Online to-do lists, for example, can be revised far more quickly than those made by hand. E-mail blasts to all employees are more productive than individual informational chats. Streamline and systemize your activities whenever possible.
For more guidance on time management, read our Time Management Troubleshooting Guide
6. Marketing and Advertising
For your business to be successful, potential customers need to know about it. This is where marketing and advertising come in as the third most cited (19%) business challenge in 2022 Small Business Trends.
Solutions are abundant in this category. You just have to define what area of marketing and advertising you need to strategize.
Is your issue with how to reach customers, for example? The coronavirus has led to more people being at home and online. If work-from-home folks are your customer base, target them online! From there, you can get even more specific: perhaps your target market really thrives on social media. Maybe they hang out on forums or message boards like Reddit. If that’s the case, developing an online presence and marketing that way will really benefit you. Try direct mail with unique methods for people who might have more time at home – and more time to respond to direct mail. Is your issue keeping sales during periods of belt-tightening for your consumers? Text people with news of promotions and loyalty programs. Campaigns that reward customers can be initiated with minimal cash outlay. If your challenge is developing marketing and advertising, there’s no time like the present to outsource. Creative people work online; recruit independent contractors for strategies and content creation.
7. Managing and Providing Benefits
Benefits are a crucial part of every business. But managing and providing benefits can also be time-consuming and complicated, leading 13% of small business owners to cite it as a leading challenge. This amount has grown significantly year over year. Businesspeople run several risks in not paying enough attention to managing and providing benefits. First, some benefits are required by law, and you can run afoul of the federal government and state mandates if they aren’t managed in accordance with the law. Second, deductibles in small business plans have increased dramatically in recent years. Business owners not paying attention could find themselves in serious trouble.
What benefits are required? Unemployment insurance is Federally required and must go through the states. Disability and workers’ compensation are required by most states. If you have more than 50 employees, the federal government requires that you provide health insurance. If you have more than 20, you must offer health insurance for 18 months after they leave your company through the Consolidated Omni-Budget Reconciliation Act (COBRA). Employers need to be compliant with the Federal Family and Medical Leave Act (FMLA) as well.
Time off to vote, for military service, and to perform jury duty is also required.
Second, benefits are key components in attracting and retaining workers. Your benefits need to be at least competitive within the industry. Common benefits include insurance (health, dental, vision, and life), paid time off (both vacation and holidays), sick leave, and retirement benefits. Benefits often used to attract employees, especially younger ones, include flexible schedules and other options for work-life balance and health-related benefits, such as gym memberships. There’s no quick and easy solution for managing and providing benefits. Small business owners who want to familiarize themselves with the basics of benefits can read here. Frankly, it’s likely best to have at least a bird’s eye view of the benefits environment, to be knowledgeable about requirements and how best to recruit and retain.
That said, you don’t have to be responsible for every benefit function. You can hire a benefits counselor or a lawyer to provide your overview and make sure you are compliant with all government agencies’ laws and regulations. They can also keep you up to date, as requirements change frequently. Staffing consultants can provide competitive industry information on benefits.
Other Small Business Problems
Guess what? Sixteen percent of small business respondents named “Other” as their most significant business challenge! Implicitly, that’s a testimony of how diverse and complex business challenges can be.
The solution, of course, depends on what kind of problem you’re having. But one all-purpose solution that many business owners find helpful is hiring a virtual assistant (VA). VAs are usually contractors. They can do administrative and clerical tasks, such as setting up meetings, creating presentations, and filing.
That said, they aren’t limited to administrative and clerical tasks. Some do bookkeeping; others are whizzes on social media. Many can research, too; if your issues are researching funding methods or potential clients, they can help. They can screen vendors and clients. Finding the time to hire an excellent all-around VA might be just the solution to make your “other” issues recede or vanish entirely. Of course, if you’re the sort of person who wants to fix things yourself, you can always try and polish your own business skills.
Get a Little Extra Help from the Pros
Guidant is dedicated to helping businesses in the startup and early stages. We can advise on funding methods, business structure, and other pressing business issues. We provide mentorship through every stage of your business’s life. Call us today to find out how we can help you at 888.472.4455.