3 Financial Challenges Facing SMBs

. 2 min read

To survive in the world of small to medium sized business, business owners must overcome a number of challenges. We’ve heard the statistics before: 50% of businesses fail during the first year in business. At times, the outlook can seem grim for SMBs.

In such a dog-eat-dog market, the margin for error is slim. And the ability of an SMB to handle financial challenges can be the difference between a business that makes it and one that goes by the wayside.

Here are three prevalent financial challenges facing SMBs today.

Problems with Cash Flow

In a study by the Federal Reserve Bank of St. Louis, 67% of businesses with annual revenue of $1 million or less reported having financial problems. Finding credit and capital when needed, paying down debt, even paying operating expenses—maintaining and managing cash flow is a top challenge.

Employee Turnover

Though working for an SMB can be quite rewarding, it can be quite stressful, too. In smaller, younger companies especially, employees are often asked to wear many hats, work long hours, often without commensurate increases in compensation. This, unfortunately, is a formula for overstrained employees and turnover.

According to a report from Tiny News, burnt-out, overtaxed employees are 31% more likely to seek new employment. As we know, replacing employees as a result of churn can be quite expensive—sometimes prohibitively so.

Managing Tax Positions

A big part of running a business is managing taxes. Doing so successfully starts long before the filing deadline in April. A business can have a stellar revenue year, but if it doesn’t manage it’s taxes correctly, it could face crippling financial penalties. How do companies typically get into tax trouble? Poor record keeping, for one. Or failing to accurately project taxes payable. Come audit time, an SMB with already thin margins could find itself in trouble.

How to Survive Financial Challenges

Typically, these challenges will force the hand of SMBs in a few ways. To make ends meet (and depending on the business size), SMBs will dip into personal funds. Others will take out more debt, or make late payments. In more dire situations, business owners will downsize staff, or go to collections.

Yet, there are some internal inefficiencies that, attended to early on, could help SMBs scale in the face of these common challenges. Consider this: on average, SMB teams spend 23% of their workdays manually inputting data. The accounting team, for example, is constantly processing transactions, payments, etc. Why not help ourselves by implementing efficiency solutions like small business accounting automation?

Regardless, accounting is just one area of concern. Considering the most prevalent financial challenges, SMBs need to find innovative ways to absorb growing pains and scale. Otherwise, they risk going by the wayside like so many of their counterparts.