You can’t ignore the next generation. While we know that small businesses face unique problems, very limited research has been entirely dedicated to their needs. To close this gap, the Ewing Marion Kauffman Foundation has released a prime study: the largest longitudinal survey of new firms in the world. The foundation tracked nearly 5,000 businesses over their first eight years of operation. By 2010, about half of the sample firms closed. During this time, small businesses have faced an election and a recession, and entrepreneurs are now finding themselves in the spotlight for Washington’s attention. Considering these seismic shifts in the small business world, let’s take a closer look at the problems facing small businesses today.
Overcoming Obstacles: The Biggest Challenges for Small Businesses Today
Sales That Move Like Snails
The number one issue on small business’ brow is slow-moving sales. In 2010, 43.8 percent of businesses reported slow or lost sales. Sluggish sales can be a drastic problem for small businesses, as many rely on anticipated sales to project their cash flow. Healthy sales depend on a huge range of unforeseeable factors, which explains why “unpredictability of business conditions” is the second-most challenging problem. Some small businesses may mitigate their sales concerns by joining a co-op to purchase inventory at a discount.
Customers Paying Late—Or Not Paying At All
Small businesses are having more and more trouble taking charge of their accounts receivable. The issue of customer payment has jumped up significantly. In 2008, only 2 percent of respondents claimed that late or missing payments were a major issue. Just two years later, 14.1 percent of small businesses report trouble with payments. Unreliable payments can hurt a small business tremendously, and some small businesses have turned to invoice factoring or receivable insurance to offset this risk.
Falling Real Estate Values
Real estate can make up a significant part of a small business’ portfolio. Nearly a quarter of small businesses who applied for loans were financing business real estate. As many small businesses operate right out of the home, even more entrepreneurs (31.6 percent) applied for personal real estate financing. According to the National Federation for Independent Businesses, falling real estate prices can mean a depressed balance sheet.
The Credit Crunch
The report states that about 40 percent of firms looking for credit had their applications denied. Meanwhile, 20 percent of businesses said they did not even apply, since they assumed they would be rejected anyway. Whether through a business line of credit or business credit cards, many small businesses use credit as an essential source for working capital. If the big banks won’t budge, small businesses can seek out alternative methods of funding, including credit unions and crowdfunding.
On the Positive Side
Despite these problems, small businesses are plowing forward and staying optimistic. Small businesses have proven themselves time and again as innovators and job creators. Nearly 20 percent of the respondents said they introduced a product or service innovation in 2010, and many of these were new to their markets. As for job creation, over half of the surviving firms had employees in 2010. While small business hiring has had its ups and downs, the average employment increased.