The Biggest Problems Faced By a New Small Business

Starting up a new small business is always a risk, no matter where you do it and what product or service you offer. However, that doesn’t stop thousands of brave entrepreneurs from doing exactly this every month.

In fact, figures from the US Bureau of Labor Statistics suggest that 400,000 new businesses start up each month, while 470,000 close down in the same time period.


image courtesy of Camilo Rueda López via Flickr

This figure for failures shows us that there are clearly a number of major problems that small business owners have to contend with, so what are the main ones you should be aware of?

Unpaid Invoices    

The Late Payments Study organised by PayPal and Intuit Australia came up with the incredible figure of $26 billion being owed by customers to small businesses around the country. This worked out at an average figure of $13,200 per business. A quarter of the affected companies have had to take out loans to cover their expenses while owed money. Indeed, it is reported that some have had to delay their mortgage repayments or cut back on their home grocery shopping due to unpaid invoices.

The study also revealed that small business owners have to spend around 12 days a year chasing up invoices that are unpaid. A general rule is that the bigger the business the more it is owed by others. For instance, a company run by a single entrepreneur will typically be owed $6,000. Meanwhile, a firm with at least 3 members of staff can expect to have $22,000 of invoices outstanding at any one time.

Other findings in this piece of research include the fact that just 12% of small businesses ask for payment upfront, while 67% take a week after the work is finished before issuing an invoice. 10% take even more than this.

Access to Finance

If we look around the world, we can see that the same problems are encountered by new small business start-ups and existing firms in different countries. For example, a recent report talks about the problem of getting access to finance for start-ups in Nigeria. This is the exact same issue that entrepreneurs report in just about every country.

In the case of Nigeria, the report suggests that a lack of data hampers the ability of small traders to borrow money. This appears to often be due to a lack of inventory or invoices. As in other parts of the world, alternative solutions to traditional bank loans could be the way forward in terms of solving this problem.

A Lack of Internet Knowledge

It is clear that the internet has revolutionised the way that we now do business. However, there are still problems with small businesses not fully understanding how best to make it work for them. A good example of this comes with the recent Small Business Authority report on SEO use.

This study shows us less than half of small business owners think that search engine driven traffic is important in terms of the new business they obtain .This means that they don’t place the importance on search engine optimisation that they might otherwise do.

Perhaps surprisingly, only 17% of small business owners are current investing in their SEO. A deeper rooted problem was also uncovered in the survey, as 39% of the companies aren’t investing in any sort of marketing at all. If we concentrate on the SEO issue, though, other pieces of research suggest that good SEO can greatly increase new business levels and, therefore, profits. It is suggested that the early days of SEO, when many dodgy tactics were used, may still be holding people back from investing in it.

Government Regulations

Another issue that is frequently mentioned as a major problem for small business growth is the matter of government regulations and red tape. While many governments speak about encouraging small businesses and how important this sector is, this doesn’t always translate into positive action.

As an example, we can see how the US presidential race is putting a spotlight on the ability and desire of the different parties to help small businesses. High taxes and tough regulations are among the issues that cause many entrepreneurs to believe that their government simply doesn’t want them to succeed.

The US Small Business Economic Trends report shows us more details on this issue. It was issued by the National Federation of Independent Business and it shows the top reasons for concern as being taxes and government regulations and red tape. Clearly, this is a problem that affects all of the small business owners in any given country equally, although the effect varies from one country to another.

Despite all of these potential problems, the desire for people to open new businesses remains as strong as ever. If you want to get off to a smooth start then the advice in this video could help you to do so.


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