What are the biggest problems for small businesses?

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Problems facing SMEs

Small businesses face a wide range of problems on a daily basis, both internally and externally. Sarah Watts, head of the Information and Advisory Services at the IoD, takes a look at the problems facing SMEs in the UK

Small companies in the UK face myriad problems on a day-to-day basis. External problems are countless and include the state of the economy, the high cost of insurance, taxes, red tape, health and safety, lack of bank lending, competition within the UK and from abroad, transport issues, employee skills gaps and shortages – the list goes on.

Internal problems are no less strenuous. Here are some of the issues facing Britain’s small businesses:

Cash
Finding it and managing the cashflow. If you are a fast-growth company you can rapidly outgrow your available sources – if you are an underperforming company you can’t access it. The majority of companies do not manage it well.

Most businesses experience some problems getting paid on time by their customers and with debt recovery. Good credit control helps to prevent this becoming a serious problem.

A surprisingly large proportion of firms have a bad credit rating. Having a good credit score is not only important to enable you to borrow funds, but will also affect your ability to secure good terms on trade credit.

However, lending conditions are improving and there is an increasing appetite for alternative finance among UK businesses. To learn more about the findings of an IoD survey on SME funding, click here

Lack of a clear plan
Most businesses don’t know how to plan. Lack of a plan worsens the cash problem by wasting cash-chasing tempting diversions, and throwing money at problems. Equally important is revising your plan according to changing economic and business conditions, and to ensure your survival post-recession.

Ineffective leadership
This issue takes many forms. It is frequently in the form of depth of leadership. The founder of the company is too much hands-on and a) does not concentrate enough on his primary role as a leader rather than a manager and b) fails to enlist support of competent managers and staff behind him or her either through recruitment or by outsourcing. This eventually causes the company to stop growing and could eventually lead to failure. Directors should always remember their core role and responsibilities.

Sales and marketing effectiveness
This leads back to planning and leadership. Many businesses do not take enough time to decide what their unique selling point is. They try to compete in conflicting areas, such as lowest price and highest service. One takes away money and the other adds cost. Part of the planning process for a new product should include a very clear answer to one simple question, ‘with all of the products and service available to my customers why should they buy from me?’

Lack of execution
This may be the biggest problem of all

  • Strategies that are developed and are never executed
  • Improvement projects fail
  • Leaders spend less that one-hour per month on strategy
  • Employees don’t know their company’s strategy. (This is a direct result of top management not documenting and communicating it.) Communicating with employees is crucial
  • Organisations don’t have meaningful performance measurements in place or carry out regular performance analysis.

Other common problems facing SMEs are:

  • Finding and keeping clients and/or customers
  • Preventing clients from eating away at your profits
  • Time management
  • Knowing how to price your services correctly
  • Writing bids and proposals

For more information on these issues, IoD members can contact the Information and Advisory Services

To become a member of the IoD, click here

About author

Sarah Watts

Sarah Watts

Sarah Watts is the IoD's head of Information and Advisory Services

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