7 reasons why its tough out there for small business

Today I would like to highlight some of the difficulties SMEs face, when operating their business, when compared with large businesses.

Summary of Interlinked difficulties faced by SMEs

1. Finance

An earlier post discussed A small business is not a little big business and the different distinct characteristics of SMEs – the main difference being the amount of resources available to large companies.

A bunch of banknotesIt is no surprise then that Finance is one of the main things an SME has difficulty with, when compared with larger companies – due to economies of scale. Large companies have greater ‘buying power’ and access to finance in general.

The economic climate can also affect an SME more than a large company because they don’t have the necessary financial cushion that large companies do in this situation.  The current global recession has affected SMEs more, and finance is more difficult to access.

2. People

Due to the smaller scale, there are fewer resources in SMEs. An SME owner-manager has to play a number of different roles in the company. S/he is not just the CEO, but can often be the financial controller, the HR, environmental and research manager to name but a few.  This amazing balancing act leaves less time to focus on high level issues such as long-term strategic planning, and staff training and development to meet the ever-changing requirements of the fast-paced world we live in today.  SMEs are known as being flexible and adaptive. However, many fear change and what it might bring.

3. Collaboration

In the world today, SMEs need to collaborate to maximise their potential. It is difficult to form alliances, and a lack of trust is the main reason for this.

4. Regulation

There is so much regulation required to run a business, it is difficult to keep up with new requirements. This is particularly true of new business owners. Despite the EU small business act, which is trying to cut red-tape for SMEs, it is still true that the relative cost to an SME compared with a large company is 10 times more. Many SMEs find regulation as a major barrier to product development. It is not always the regulation itself that is the issue, but finding out what the regulation means in practice is a problem.

5. Innovation

Innovation is necessary for SMEs to compete. Barriers to successful innovation in SMEs include a lack of finance, management skills, appropriate information, regulation, strategic alliances and a lack of skilled labour (marketing skills in particular) . The nature of innovation being high risk means that SMEs are less successful than non-innovative ones when attempting to get access to finance .

6. Information

There is so much information that an SME has to deal with. Information coming in via email, info about suppliers, customers, processes, the list is endless. There is so much information freely available, it is difficult to wade through it all to select the correct and relevant information that might be needed. It can be over-whelming and another burden for business owners.

7. The environment

Despite that sustainability activities can be beneficial to SMEs, most SMEs see this an extra burden to their already full workload. This is the reason I am focusing on this issue for my research.

I am working on a framework to help SMEs unlock the potential related to sustainability instead of considering it the enemy! Watch this space!

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