SME Challenges

Top Five Challenges for SMEs in Today’s World

Businesses face a multitude of challenges every day but these issues can be particularly acute for growing SMEs operating on lean budgets, especially in the uncertain economic climate we have today. With planning and preparation however, there are ways in which SMEs can navigate these challenges. In this post we explore the top five challenges for SMEs and some of the actions they can take.    

Cash is King

Without doubt, cash flow is one of the most important factors in the success or failure of a business. It’s a universal issue with almost three in five SMEs experiencing problems with their cash flow according to a recent study.

In order to scale, SMEs need to continue to reinvest in the business but costly investments in IT infrastructure or new premises can put a heavy burden on a company’s cash flow. Slow-paying clients can also derail a company’s cashflow quickly if left unchecked.

To manage this, SMEs should plan very carefully for significant investments and research what financing options are available to spread the cost of major investments. It is also important to have clear payment terms in place and make sure they are enforced so a company can keep on top of slow-paying clients and regulate cash flow. 

Staff Retention

Attracting and retaining staff is a top priority for all businesses but it’s a particular challenge for SMEs with over two thirds of UK SME bosses reporting that they face recruitment and retention difficulties. It is vital that SMEs retain valued members of staff. The cost of replacing employees including recruitment fees and time spent training new joiners can mount up to a huge expense. For businesses with small headcounts, high staff turnover can also have a significant impact on staff morale and the productivity of remaining employees.

SMEs will often struggle to compete with large competitors when it comes to remuneration. They may also lack the brand profile that some employees look for. But there are other benefits which SMEs can provide. Offering employees personal development and training opportunities can be highly motivating . Similarly, offering employees flexible or remote working opportunities can be a low-cost way of boosting morale and can, in some cases, actually improve employee productivity.

Founder Dependence

It’s natural for the founder to play a pinnacle role in a business. They have built the business up from scratch and know the industry inside out. But once a business outgrows start-up mode and becomes an SME, too much reliance on the founder can actually be a business risk. If a business can’t function without its founder, it simply won’t be able to grow beyond that start-up phase.

Employees in the business need to be trusted to take on responsibility in order to avoid bottlenecks in the decision-making process. Too much founder dependence can also lead to a frustrated workforce as well as putting a huge amount of pressure on the founder as we discussed in Skyscraper Syndrome.

To avoid this, it is important to establish clearly defined accountability structures from an early stage so that everyone understands their roles and responsibilities in the business. Founders may need to compromise on the quality of work for a short period of time while new staff are trained but providing the onboarding process is thorough, new staff will soon be able to take on responsibilities so that the business can run efficiently.

Client Dependence

Diversifying the client base is an essential part of growing the business. It can be very tempting for an SME to devote the majority of its resources to serving one or two ideal clients which are easy to work with and pay on time. But that comes with huge risks.  All it takes is for those clients to encounter financial difficulties or to take their work elsewhere for the business to be left in a very challenging financial position. This is exactly what happened to hundreds of small businesses which are still waiting to be paid following the sudden collapse of contracting businesses Carillion and Interserve.

SMEs need to take a careful look at their client lists and assess which clients are responsible for the most business income. If it becomes clear that one or two clients are responsible for more than half the business income, then it’s time to focus on winning new business and diversifying the client base.

Building a Brand

Building brand recognition is essential for securing new customers and employees. For start-ups, a lot of business often initially comes through contacts and referrals but as businesses grow, in order to gain new customers, SMEs need to start investing in their brand. But knowing where to start can be challenging.

There are a huge number of different methods for promoting a brand, for instance social media, print advertising, sponsorship and PR – to name just a few. To add to the challenge, SMEs are often operating on lean budgets and hiring agencies can often take a huge amount of budget that could be spent elsewhere.

SMEs need to begin by assessing how best to reach their target audience and this may mean experimenting with a few different methods. There are lots of ways now to get help from professionals without incurring expensive agency fees, for example hiring freelancers on a project basis or employing virtual assistants. There are also a number of different methods to consider which can be highly effective without requiring huge marketing budgets, such as SEO, social media, PPC and other online advertising methods.

Summary

These are perennial challenges which all SMEs are likely to encounter at some point but with careful planning and preparation, these issues can be overcome. By being self-critical and always keeping a close eye on how the business is performing SMEs can prepare for a lot of these issues and take the necessary steps to mitigate any risks. This is where a business advisor can be really helpful, providing the objective advice needed to successfully manage and scale the business and help navigate the company through any obstacles that arise.