Challenges Facing Small Businesses

Small businesses face a number of challenges. From the startup phase to maintaining the business to growing the business, entrepreneurs need to constantly face a number of challenges, some of which are unique to small businesses. Foremost of course of these challenges is ensuring that the business survives. According to the Small Business Administration

About half of all new establishments survive five years or more and about one-third survive 10 years or more.

A study on Small and Mid-Sized Businesses prepared by Arthur Andersen provides an interesting peek into the challenges and opportunities faced by the small businesses. The report pays particular attention on the impact of the Internet and technology on small businesses.

According to the study, majority of small businesses (61 percent) considers finding and retaining qualified workers as the most significant challenge to the growth and survival of their business. Other major concerns of small businesses include: state and federal regulations (35 percent), economic uncertainty (29 percent), keeping up with the technology (28 percent) and access to adequate capital (27 percent).

Interestingly, only 16 percent of small businesses consider doing business on the Internet as a threat. In fact, half of the respondents of the survey (50 percent) intend to use the Internet as their key growth strategy for the next 12 months. The report noted the growing acceptance of Internet as the driver for growth, from only 33 percent last year to 50 percent this year. A vast majority of small businesses (85 percent) now uses the Internet, primarily for email (71 percent) and research (60 percent).

However, a mere 3 percent of small businesses surveyed indicate that e-commerce is an integral part of their doing business. More than half of these businesses currently do not conduct e-commerce (54 percent) nor have plans to do so in the next year. Another interesting figure is the attitude of small businesses toward e-commerce: approximately 42 percent of respondents view e-commerce as having no impact on their businesses.

They cite the lack of time to plan or implement (82 percent), the cost of implementation (80 percent), and the radically changing technology (77 percent) as top three main barriers to conducting e-commerce. Other reasons cited are limited technical expertise (73 percent) and staff training needs (68 percent).

In terms of financing, three-fourths of those surveyed (76 percent) indicated that they were able to obtain adequate financing. Credit cards top the list (50 percent) of sources of financing used by small businesses to meet their capital needs, followed closely by commercial bank loan (43 percent). Only two percent of the respondents were able to get funding from venture capital firms, while angel investors were the source of funding for a fifth of the respondents (20 percent).

One interesting finding about the use of credit cards, though hardly surprising, is that small businesses mix business on a personal credit card (49 percent). Despite being an expensive source of funds (only 36 percent pay off their bills each month), the use of credit card for business financing has been steadily increasing for the last three years. Respondents cite its convenience (86 percent) as the main reason for its continued popularity. Small business normally use credit cards for travel and entertainment expenses (69 percent), day-to-day expenses (64 percent), large capital outlays (46 percent) and inventory purchase (34 percent).

 
Recommended Books on Challenges Facing Small Businesses:

• Birthing the Elephant: The Woman’s Go-For-It! Guide to Overcoming the Big Challenges of Launching a Business
• Small Business Management: Launching and Growing Entrepreneurial Ventures
• Six Disciplines for Excellence: Building Small Businesses That Learn, Lead and Last
• The New Small: How a New Breed of Small Businesses Is Harnessing the Power of Emerging Technologies
• 19 Ways to Survive: Small-Business Strategies for a Tough Economy (101 for Small Business)