What are the challenges that small businesses face today? And what prevents companies from overcoming these challenges?
Most experts agree that most businesses face the following challenges: client dependency, founder dependency, fatigue and demotivation, staying relevant and updated with trends, money management issues, finding the balance between quality and growth. On the surface, many businesses share these challenges. But if we dig deeper, you’ll find that the root cause for these challenges differ for each business. With different root causes, there isn’t a one-size-fits-all solution to a single challenge. Some of the challenges that businesses face are often symptoms of a deeper problem.
In the third of a three-part series, I will discuss two challenges: cashflow and money management issues and finding the balance between growth and quality. I will explore the underlying reasons for why businesses face these challenges so that you can focus on addressing these underlying reasons. In doing so, you not only address the symptoms but eliminate the problem at the source.
Challenge #5: Cash flow and money management issues
This challenge manifests itself in two ways in most business cases. One is getting paid on time. The second is controlling costs.
To minimise these issues, you need to develop a good understanding of the revenue and expenditure cycle. For example, do you experience seasonal sales? Do you have seasonal expenses? Do your seasonally high expenses coincide with your seasonally high revenues—or do they run opposite of each other?
Monitor your revenues. Are your customers paying? Are they paying on time? Make it easy for customers to pay on time. This entails being clear and explicit about payment deadlines, reminding clients about deadlines, providing multiple options to pay, and giving discounts or special perks for good-paying clients.
Monitor your expenses. Are you spending on the right things? Are you spending too much on something? It’s best to regularly review your spending and find if there are expenditures that you can either do without or reduce.
Mountain Bikes Direct learned a painful lesson in the importance of monitoring expenditures. As a mountain bikes and parts e-commerce retailer, they were gaining market traction and rising sales, but they weren’t profitable, even when they were offering more than their competitors did. What they found out was that they were spending more than they should. To be financially sustainable, they had to control their expenses and aggressively undergo a financial detoxification process. Only when they started cutting down on unnecessary spending, including paring down on inventory for slow-moving products, did they start seeing profits.
Build cash reserves. What the pandemic has taught many businesses is the importance of cash reserves. Cash reserves provide you with the capacity to respond to disruptions, pivot when needed, and expand your growth operations.
Challenge #6: Finding the balance between growth and quality
Scaling is a problem often faced by small businesses. This challenge is characterised by several layers of unique but related smaller challenges:
- Coming up with a cost-efficient process of producing goods and services
- Ensuring that the process is easy to replicate, particularly if production is not exclusive to one site or one person
- Making sure that the quality of goods and services are delivered consistently to every customer every single time
This was the problem of MOO, an England-based online print and design company that allows customers to design and print their business stationery and promotional materials. They serve customers in over 190 countries and operate in six printing locations across the United Kingdom and the United States. MOO CEO and Founder Richard Moross admit that scaling can be a painful process, but the key is working with suppliers and raw materials that can also scale. This means working with machines that can handle printing hundreds of millions of business cards per year, using ink that can be sustainably sourced and produced by companies that can make trillions of gallons per year.
In summary, I have discussed two challenges small businesses face. First is cash flow and money management issues. Addressing this problem entails looking at both your revenues and your expenditures, making sure that you aren’t spending more than you make, and that you are receiving payments from your customers on time.
The second is finding the balance between growth and quality. One solution is to design the production process with scaling in mind.
Finally, this three-part series discussed six challenges that small businesses commonly face: client dependency, founder dependency, fatigue and demotivation, money management issues, staying relevant and updated with trends, and finding the balance between quality and growth. On the surface, these challenges may look the same. But if we dig deeper, you’ll find that the root causes for these challenges differ for each business. With different root causes, there isn’t a one-size-fits-all solution to a single challenge. Some of the challenges that businesses face are often symptoms of a deeper problem. You need to understand the underlying reasons for why your business is facing these challenges so that businesses can focus on addressing these underlying reasons. In doing so, not only do you address the symptoms but also eliminate the problem at the source. If you can’t seem to do this or have difficulty overcoming any of the challenges discussed in the three videos of this series, send me an email to have a chat about that.