Common Small Business Challenges and How to Overcome Them

concerned small business owner looking at her laptop

Last Updated June 28, 2024

It is estimated that there are over 33.2 million small businesses in the U.S. While on the surface this can make it seem like small business difficulties are few and far between, the reality is that there are many challenges small businesses face. In fact, it’s estimated that between one in five and one in four businesses fail during their first year of operation.

By understanding common small business challenges and how to address them in an effective manner, business owners can find lasting success that helps them reach their career goals.

What Are Some of the Most Common Small Business Challenges?

The following are some of the most common challenges faced by small businesses. By finding effective solutions to these small business problems, you can position yourself to overcome small business difficulties and achieve lasting success.

Cash Flow

The U.S. Chamber of Commerce cites cash flow as the top reason for small business failures. Cash flow problems occur when a business has more money going out than it does coming in. This could result from poor budgeting, insufficient funding, issues with inventory management, and other challenges faced when starting a small business. Other common cash flow problems stem from seasonality, rapid growth, delayed customer payments, and even unexpected issues like lawsuits or customer bankruptcy.

Solution: Because the root cause for these financial challenges for small businesses can vary, there’s not necessarily a one-size-fits-all solution for improving cash flow. However, businesses can prioritize cash flow by creating and following a budget and by incentivizing clients to pay faster with methods like shorter payment terms or early payment discounts.

Late Customer Payments

Seventy-three percent of small businesses are harmed by late invoice payments. Late customer payments are one of the biggest problems small businesses face because of how significantly they can affect cash flow. Chronic late payments can leave you unable to cover your own expenses and put you in significant financial trouble.

Solution: To get invoices paid faster, small businesses can offer early payment discounts or charge late fees. Business owners can also shorten payment terms to ensure faster payment. Practices such as invoice verification, e-invoicing, and offering automated payment solutions can also streamline payment for clients. Finally, have a follow-up system in place to remind customers when payments are almost due or overdue.

Accessing Business Funding

Many new businesses struggle to obtain sufficient funding to get their company off the ground. Without sufficient funding, you’ll have a hard time hiring employees, covering monthly overhead, and securing equipment, materials, and other supplies for your business.

Solution: Businesses can get a cash infusion through private lenders, as well as the U.S. SBA 7(a) loans program. Other funding options include applying for grants, crowdfunding, or requesting donations from friends or family. New entrepreneurs must often use creativity to access necessary financing for their business if their own personal funds aren’t sufficient.

Lack of Demand for Products or Services

A little over 40% of small business failures are attributed to a lack of demand for the product or service. The market could be oversaturated with other similar businesses, or there might not be enough of a demand among the general public for what you offer. Even with a massive marketing budget, a product or service with no demand won’t make an impact.

Solution: Whether starting a new business or launching a new product for an existing business, always do extensive market research. Analyze potential markets and your competition to determine if an audience exists.

Effectively Marketing Services

Even with a great idea for a product or service, a business that doesn’t market itself effectively is unlikely to succeed. In fact, 73% of small businesses worry that their current marketing strategy doesn’t actually contribute to their business goals. Marketing can be time-consuming and expensive—but if it isn’t done effectively, it won’t deliver much of an ROI.

Solution: Market research is key for understanding your ideal customer—what type of messaging appeals to them, what channels you can reach them on, and so forth. While a clearly defined marketing strategy can help, most businesses need to outsource at least some marketing tasks that lie outside their area of expertise, such as creating content or purchasing ad space.

Insufficient Business Plan

Without a well-defined business plan, you’ll have a hard time overcoming small business challenges. Your business plan defines your goals and how you’ll achieve them. It offers key guidelines for how you will operate, and can even be used to set a budget or obtain funding. Without clear priorities, you may have a hard time identifying the strategies that will contribute to lasting growth.

Solution: Take the time to draft a thorough business plan that includes a company overview, a list of products and services, market analysis, a marketing and sales plan, and an operational plan. Refer to it often as a type of guidebook so you can stay on track as you work to grow your business.

Finding the Right Employees

Glassdoor reports that among hiring decision-makers, 76% say their biggest challenge is attracting quality candidates. The right employee can take your business to the next level. The wrong hire will be less productive and innovative—and could even harm your company culture.

Solution: Do your due diligence during the hiring process. Clearly define responsibilities and benefits in your job listings. Thoroughly review candidate qualifications and references. And to attract the best candidates, be sure to offer a competitive salary.

Winning Customers

To achieve long-term success, businesses must truly “win” customers by delighting them. Providing a memorable service experience that encourages them to become repeat customers and participate in word-of-mouth marketing is essential. But this can be challenging if you have a smaller team or limited service offerings.

Solution: Make sure you fully understand your customer needs before serving them. Set clear expectations up front, and then deliver on them. Look for ways where you can go beyond what customers expect to provide a positive and memorable experience. Always look for ways to improve customer interactions.

Prioritizing Short-Term Growth vs. Long-Term Planning

With so many challenges facing small business enterprises, it’s easy for business owners to focus on short-term growth above anything else. However, becoming too focused on immediate challenges can cause businesses to neglect the need for long-term planning. A report from Truist notes that only 35% of small businesses have a formal plan for long-term growth. Failing to consider long-term planning could cause business owners to take actions that undermine their big-picture goals.

Solution: Make long-term planning a priority in your business activities. Be especially mindful of sales and revenue growth goals, as well as the anticipated investments in marketing and other areas that will be needed to support these goals. Long-term planning will ensure that your short-term initiatives are actually in your business’s best interests.

Low (or Nonexistent) Business Credit Score

Your business credit score plays a significant role in your ability to obtain loans. But for new businesses in particular, a low or nonexistent credit score can make it nearly impossible to get a loan. High interest rates could strain your finances, and failing to qualify for a loan at all could keep you from carrying out essential business activities. Business loans for struggling small businesses usually aren’t an option when you’re viewed as a risky investment.

Solution: Take steps to improve your business credit score, such as ensuring that you are making all of your payments on time, decreasing your credit utilization ratio, responsibly using a business credit card, and asking trade partners to vouch for you with credit bureaus.

Fluctuating Interest Rates

Fluctuating interest rates can cause havoc for a small business budget, particularly during periods when inflation and rising interest rates increase the cost of borrowing. Interest rate changes can make it harder to access needed capital. Small businesses might not be able to borrow as much money as they otherwise would, or they might need to limit investments in growth initiatives.

Solution: Always consider how interest rates affect your budget and borrowing capability. Consistently performing a budget analysis and checking your credit will help you determine how much you can afford to borrow to fund business activities. Consider alternatives that aren’t affected by interest rates and won’t require you to go into debt, such as invoice factoring.

Related: How Do Interest Rates Impact Small Businesses?

In-Summary: Common Small Business Challenges

From cash flow concerns to trouble finding quality employees, the challenges of running a small business are unlikely to ever disappear completely. However, these challenges don’t have to turn into serious small business struggles. By understanding these common issues and developing a plan that will allow you to implement effective solutions for them, your business can thrive under any circumstances.

Need Help Funding Your Small Business? Try Invoice Factoring with altLINE

Funding is one of the biggest challenges for small business owners, particularly when they have low credit scores or other factors that prevent them from obtaining loans. With altLINE, however, you have an alternative solution with invoice factoring.

With altLINE’s invoice factoring, you can sell unpaid invoices in exchange for upfront cash, typically worth 80-90% of the total value of the invoice. Once the client pays the invoice, you’ll receive the rest of the funds for the invoice, minus altLINE’s low processing fees. With immediate access to your cash, you’ll have the necessary resources to fund payroll and other overhead to keep your business running smoothly.

If you’re interested in learning more about invoice factoring and how altLINE can help you achieve your business growth goals, fill out our form to contact a representative or give us a call at +1 205-607-0811. We’d be happy to speak with you!