Small businesses are the lifeblood of the country. There are 36.2 million small businesses in the United States, according to data from the U.S. Small Business Administration Office of Advocacy. Small businesses are vital to economic innovation. However, keeping a small business moving along can be challenging. Data from the U.S. Bureau of Labor Statistics reveals that roughly 20 percent to 22 percent of new private-sector businesses fail within their first year. By the five-year mark, nearly half close their doors. Understanding the potential obstacles that small businesses face can help guide aspiring entrepreneurs.
Cash shortages
One of the biggest threats to a young business is a shortage of liquid capital. According to research from the SBA and SCORE, poor cash flow management plays a role in more than 80 percent of small business failures. Delays in client payments or unexpected expenses quickly can drain operational funds. Also, rising costs of materials and labor and additional expenses can put pressure on profit margins.
Hiring issues
Small businesses may be competing with larger corporations for skilled workers, and larger firms might be able to offer more attractive benefits. That can pose challenges in regard to keeping operations staffed with quality employees. As a result, small business owners often wear many hats and juggle responsibilities, which can lead to burnout, says Walden University.
Market demand
A CB Insights analysis found that 42 percent of failed startups attributed their collapse to a lack of market need. Entrepreneurs need to determine if consumers are willing to pay for a solution before investing substantial capital into a company.
Customer retention
The U.S. Chamber of Commerce says keeping a steady stream of returning buyers often requires adapting to changing consumer trends and ongoing effort on the part of business owners. But limited advertising budgets can make it harder for small businesses to compete with big brands for customer attention. Also, with business owners often putting out small fires each day, it may leave little time for long-term customer retention planning.
