While owners of SMEs find the work rewarding, they also face many challenges.
Anyone who has dabbled in the world of SMEs knows this. We expect the usual challenges of launching and running a start-up.
But calamities like the COVID-19 pandemic and the current financial mire are making it harder and bringing additional tests for leaders.
What are SMEs?
Before we begin looking at the challenges of SMEs and how to confront them, let’s understand what we are talking about.
Small and Medium-Sized Enterprises account for the vast majority of European businesses.
There are different definitions of the term SMEs, but most concentrate on staffing levels and turnover. For example, the EU categorises a company with fewer than 250 workers and a turnover of less than €50 million as a medium-sized enterprise. A small enterprise has fewer than 50 staff and a turnover below €10 million.
This will alter from place to place and industry to industry, but I think we all know an SME when we see one.
The SMEs Challenges
Many new businesses fail within the first 12 months. During the lockdown restrictions, some small businesses which had weathered that tough first year became casualties. The current economic conditions are threatening longer-established companies.
Even if your SMEs business makes it beyond that critical first year, and has survived exceptional external pressures, the challenges are not over. You still need to have a firm grasp of all the elements that will determine your enterprise’s success or failure every day.
Looking back over my own journey as an entrepreneur and speaking to other business leaders, I have arrived at eight of the biggest challenges faced by SMEs.
One Step at a Time
Launching a business, sustaining it, and growing the company are daunting goals. Some are overwhelmed by the responsibility and magnitude of leadership. That’s because they are trying to take on the big goals without rationalising them into smaller, more achievable steps toward success.
Fail to Plan…
No one should go into business if they don’t understand the value of planning. However, we can go in with the best launch and first-year business plan ever seen, but then lose sight of planning for the next phase. The work becomes so demanding that we live day to day instead of thinking and planning months and even years ahead.
TMI
As a small business owner, you are inundated with information and data. Income, outgoings, staff rotas, margins, supplier quotes, the figures just keep coming at you. This makes it hard to see the full picture or get the granular insights you need.
Head for Figures
Many entrepreneurs do not have a background or training in bookkeeping or accountancy. Many struggle to understand the processes and, fundamentally, what the numbers are telling them. Yet, especially in the early years, they shoulder the burden of doing the company accounts, usually to keep costs down.
Money Movement
As I have discussed previously, understanding your cash flow, where it comes from, where it goes, and how to manage it and plan ahead are critical to the survival of your business. Not all start-up and SME bosses take the time to get to grips with this key area.
Lean on Me
Keeping costs under control often means we avoid employing expert external advice. Many entrepreneurs try to fulfil every role, despite a lack of time, experience, or knowledge. That can mean vital areas are dealt with poorly or entirely overlooked.
Bad Advice
If you don’t understand the numbers and can’t get the detailed data you need, how can your financial insights be reliable? Reliable insight into your company’s finances is crucial. In some cases, leaders listen to unreliable sources of insight because they tell a happier story.
Staying On Brand
I say this a lot, but you have to market your business, and it has to be strategic. When we look at minimising costs, marketing and advertising are often the first to be cut. It’s the easy option. Too many new businesses launch without a defined marketing strategy, so they waste time and money on a ‘scattergun’ approach that delivers little and is hard to measure. Or worse, they do nothing and cannot understand why they have no customers.
Overcoming the SMEs Challenges
So, how can SMEs deal with the challenges outlined above?
The first thing is to accept that you are being challenged. Next, look back at the list and admit which apply to you.
For example, if you are a trained and qualified accountant, the points about understanding financial insights and cash flow may not apply to you.
There are simple actions you, as a SMEs leader, can take to address most of the items on the list. I’ll break them down into two broad categories: planning and getting help.
Start by thinking. Before you launch or move to the next phase of development, take time to plan. Take a detailed look at your finances, staffing, and productivity. See how much you have available to invest or can attract in investment. Study your industry to see where competitors are winning or losing and what customers want. Break your growth plan down into achievable goals. This makes the destination seem less daunting and gives you a confidence boost each time one is ticked off.
Next, get help. Bringing in the expertise you need to survive is not a luxury. If you truly don’t have a head for figures, employing an accountant or bookkeeper, or outsourcing to a reliable firm, is essential. Being able to interrogate your financial data is too important. The same goes for marketing. It’s vital to your business, but only worth the investment if it is done properly. Getting external help can be worth its weight in gold, especially when the metrics include a clear ROI goal.
Conclusion
All SMEs face challenges. As leaders, we should not be adding to them.
Most of the issues your SMEs will face can be minimised with a firm grasp of the numbers, thoughtful, evidence-based planning, and bringing in the experts to plug knowledge and resource gaps.
There will always be storms we cannot fully predict, like COVID and disastrous government economic policies, but if you look after the areas I’ve discussed, you will be well prepared for what lies ahead.
