5 Biggest Challenges Facing Your Small Business

Starting a business is a significant achievement for many entrepreneurs, but maintaining one is the larger challenge. There are many challenges that every business—large or small—faces. Hiring the right people, building a brand, and developing a customer base are some common challenges. However, there are some unique challenges to operating a small business.

Here are the five most significant challenges for small businesses.

Key Takeaways

It's important that a small business is never dependent on a single client.
Small businesses can struggle with money management; hiring a professional to help with money management can free up time to focus on operating concerns.
Overworking is another challenge of operating a small business; it's essential to find the right balance between working long hours and business success.
Many small businesses can become dependent on their founder; a small business owner should not create a situation where the business cannot continue in their absence.
Starting a small business may be different than simply working as a freelancer.

1. Client Dependence

If a single client makes up more than half of your income, you are operating in a way that more closely resembles an independent contractor than a business owner. Diversifying your client base is vital to growing a business, but it can be difficult—especially when the client in question pays well. (Having a client who pays on time for a service is a godsend for many small businesses.)

Unfortunately, client dependence can result in a longer-term handicap; even if you have employees, you may still be technically operating as a subcontractor for another business. This arrangement allows the client to avoid any of the risks of adding payroll to an area of its business operations where work may dry up at any time; as a result, all of that risk is transferred from the larger company to your small business (and your employees). This arrangement is risky, but it can work if your main client has a consistent need for your product or service.

2. Money Management

Having enough cash to cover the bills is necessary for any business, but it is also necessary for your personal finances. Between your business and your personal finances, one of these will likely emerge as a capital drain and put pressure on the other. To avoid this problem, small business owners must be heavily capitalized—or secure extra income to shore up cash reserves when needed. Many small businesses start with the founders working a job and building a business simultaneously. While this split focus can make it challenging to grow a business, running out of cash actually makes growing a business impossible.

Money management becomes even more important when cash is flowing into the business. Although handling business accounting and taxes may be within the purview of most business owners, professional help is usually a good idea. The complexity of a company’s books increases with each client and employee; seeking out assistance on bookkeeping tasks can prevent it from becoming a reason not to expand.

3. Fatigue

The hours, the work, and the constant pressure to perform wear on even the most passionate individuals. Many business owners—even successful ones—get stuck working much longer hours than their employees. Moreover, small business owners may fear their business will stall in their absence and avoid taking any time away from work to recharge.

Fatigue can lead to rash decisions about the business, including the desire to abandon it altogether. Finding a pace that keeps the business humming, without wearing out the owner, is a challenge that can come up early in the evolution of a small business.

It is generally better for a business to have a diversified client base to pick up the slack when any single client quits paying.

4. Founder Dependence

A business that can't operate without its founder is a business with a deadline. Many businesses suffer from founder dependence; this is often caused by the founder being unable to let go of certain decisions and responsibilities as the business grows.

In theory, meeting this challenge is easy—a business owner needs to give more control to employees or partners. In practice, however, this is a significant stumbling block for founders because it usually involves compromising (at least initially) the quality of work being done.

Growth should never be the enemy of quality. A small business needs both.

5. Balancing Quality and Growth

Even when a business is not founder-dependent, there comes a time when the challenges that arise as a result of the business's growth are equal to (or even outweigh) the benefits. Whether it's a service or a product, at some point a business must sacrifice quality to scale up. This may mean not being able to personally manage every client relationship or not inspecting every component of a final product.

Unfortunately, it may be that level of personal engagement and attention to detail that makes a business successful. Therefore, many small business owners find themselves tied to these habits. There is a large middle ground between shoddy work and an unhealthy obsession with quality; it is up to the business owner to navigate its processes toward a compromise that allows growth without hurting the brand.

What Is the Biggest Problem for Small Businesses?

While small business owners face many challenges in growing and scaling their businesses, it is an excellent time to be a small business owner in the U.S. today. Between March 2021 and March 2022, 1.4 million new small businesses opened in the U.S. When opening a small business, many founders struggle with finding qualified, hardworking employees. Another big problem that small businesses face is a lack of funds. If even one client fails to make a payment, it can have huge consequences for the business. Finally, many businesses struggle with balancing growth and quality. Sometimes it may be necessary to sacrifice quality in order to scale in size.

What Is the Biggest Mistake Small Businesses Make?

Starting a small business is undoubtedly challenging, even for the most experienced entrepreneur; the statistics about the high number of businesses that close within a year are a testament to these challenges. However, there are certain mistakes you can avoid in the short term to make success in the long term more likely. One of the most common mistakes that small business owners make is not creating a comprehensive business plan in the beginning. This business plan should include a large amount of research. (Research that should be done before starting the business.) The business plan should include information about how the profit model of the business, market research about the local competition and demand for the product, the operations of the business, an outline of all sales and marketing efforts, investment data, and financial projections.

What Are the Disadvantages Facing Owners of Small Businesses?

There are many advantages to being an entrepreneur. First and foremost, working for yourself can offer a level of freedom you cannot find working in a traditional job, with a boss or manager. However, owners of small businesses face many disadvantages that employees do not face. Top of mind for many people considering opening a small business is the high probability of income instability. There is also a significant amount of financial risk that you incur if you finance your small business with a business loan. You may also work longer hours than a traditional employee. Plus, you'll lack the guidance or direction of a traditional employee, who has a boss or manager to provide support. In the beginning stages of starting a business, seek out the help of a mentor or a consultant.

The Bottom Line

The problems faced by small businesses are considerable, and one of the worst things a would-be owner can do is go into business without considering the challenges ahead. We’ve looked at ways to help make these challenges more accessible, but there is no avoiding them.

On the other hand, a competitive drive is often one of the reasons people start their own business, and every challenge represents another opportunity to compete.