5 Challenges all Small Business Owners Face

As small business owners, we all face challenges. What are the biggest challenges facing you and your business. I was recently reading an article that discussed the 5 Biggest Challenges Facing Your Small Business. When I read them, I knew that these would resonate with most of the business owners I’ve connected with.

1. Client Dependence
If a single client makes up more than half of your income, you are more of 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 and on time. For many small businesses, having a client willing to pay on time for a product or service is a godsend. However, you need to be careful to evaluate this type of client. I recently worked with a client who lost one of his largest clients…however, as we looked at the details, this was a cashflow client and he was making very little serving a large client. Sometimes a large client can result in a longer-term handicap because, even if you have employees and so on, you may be still acting as a sub-contractor for a larger business. This arrangement allows the client to avoid the risks of adding payroll in an area where the work may dry up at any time. All of that risk is transferred from the larger company to you and your employees. This arrangement can work if your main client has a consistent need for your product or service. However, it is generally better for a business to have a diversified client base to pick up the slack when any single client quits paying. Evaluating your client base, and understanding what clients are driving the most revenue and the most profit are areas that A Fractional CFO can help.

2. Money Management
Having enough cash to cover the bills is a must for any business, but it is also a must for every individual. Whether it is your business or your life, one will likely emerge as a capital drain that puts pressure on the other. To avoid this problem, small business owners must either be heavily capitalized or be able to pick up extra income to shore up cash reserves when needed. This is why many small businesses start out with the founders working a job and building a business simultaneously. While this split focus can make it difficult to grow a business, running out of cash makes growing a business impossible. Money management becomes even more important when cash is flowing into the business and to the owner. Although handling business accounting and taxes may be within the capabilities of most business owners, professional help is usually a good idea. The complexity of a company’s books goes up with each client and employee, so getting an assist on the bookkeeping can prevent it from becoming a reason not to expand. This is why I think all business need a running cash flow forecast. This is an area that A Fractional CFO can help with.

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

Fatigue can lead to rash decisions about the business, including the desire to abandon it completely. Finding a pace that keeps the business humming without grinding down the owner is a challenge that comes early (and often) in the evolution of a small business. When prospects ask, “How can I afford you?” My answer is often, what is the value of your sleep or personal time. Helping be a voice of reason and taking some financial burden off your plate can help you make better decisions. A Fractional CFO can help with that.

4. Founder Dependence
If you get hit by a car, is your business still producing income the next day? A business that can’t operate without its founder is a business with a deadline. Many businesses suffer from founder dependence, and this dependence is often caused by the founder being unable to let go of certain decisions and responsibilities as the business grows.

Meeting this challenge is easy, in theory—a business owner merely has to give over more control to their employees or partners. In practice, however, this is a big stumbling block for founders because it usually involves compromising (at least initially) on the quality of work being done until the person doing the work learns the ropes.

I talk with owners about transition planning, and making sure you have taken the necessary precautions both legally and using insurance to make sure your family, and business are taken care of in the event you are injured.

5. Balancing Quality and Growth
Even when a business is not founder-dependent, there comes a time when the issues from growth seem to match or even outweigh the benefits. Whether a service or a product, at some point a business must sacrifice in order to scale. This may mean not being able to personally manage every client relationship or not inspecting every widget.

Unfortunately, it is usually that level of personal engagement and attention to detail that makes a business semi-successful. Therefore, many small business owners often find themselves tied to these habits to the detriment of the company’s growth. There is a large middle ground between shoddy work and an unhealthy obsession with quality, so it is up to the business owner to navigate the company’s processes towards a compromise that allows scale without hurting the brand. This is what I call acting like an adult business. You need to treat a larger entity differently, not unlike how you treat an adult differently than a child. You’ve learned a lot of lessons getting to that point…but you still have a lot of learning to do. Surround yourself with professionals to help you.

The Bottom Line
One of the worst things a would-be business owner can do is to go into a small business without considering the challenges ahead. I’ve looked at some things to help make these challenges easier, but there is no avoiding them. Besides, a competitive drive is often one of the reasons people start their own business, and every challenge represents another opportunity to compete.
Schedule a free consultation with A Fractional CFO today. Below is a link to my calendar. You owe it to yourself and your business to have a conversation with us.