Small and medium-sized enterprises, or SMEs, play a significant role in the global economic landscape. These organisations serve as pivotal contributors that create jobs, foster innovation and drive economic growth. However, if youโre the owner of a small or medium-sized business, youโll also be well aware of the many challenges for SMEs, which can impede growth and expansion. This is particularly the case in the current economic environment, characterised by heightened inflation and interest rates, supply chain disruption and geopolitical challenges. Here, we take a deeper dive into the top 10 issues facing SMEs in 2023.
1. Access to capital
One of the biggest challenges for SMEs is accessing capital. This is particularly the case for smaller businesses, with banks and other financial institutions often adopting a cautious approach to lending these businesses money, driven by reservations about their size and risk profile. This can make it challenging for small businesses to invest in new equipment, hire employees or expand their operations and means shareholders are often required to use their own assets as security for any borrowing.
2. Cash flow management
Cash flow management is crucial for SMEs. If youโre a business owner, youโll need ensure your business has adequate money to cover its expenses and invest in growth. Preparing a budget and forecasting cashflows is key and should assist you with planning. Late payments from customers, unexpected expenses and fluctuations in revenue can all impact on your cash flow. This is exacerbated when inflation and price pressures affect your key inputs.
3. Competition
SMEs face intense competition from other businesses. Competing with larger companies can be particularly challenging, as they often have more resources and established brands. As the owner or manager of an SME business, youโll need to find ways to differentiate your business and establish a foothold in the market.
4. Talent management
SMEs often have limited resources and significant competition from larger organisations, making the hiring and retention of skilled employees an uphill task. It can be challenging for you to offer competitive salaries and benefits compared with these organisations. Instead, identify your businessโs strengths, particularly those that benefit your people and potential employees, and focus on these strengths in your hiring and retention strategies. For example, if your business has a great culture, you could use this as a focal point in your job ads and could provide testimonials from staff on your social media channels.
5. Regulatory compliance
SMEs must comply with and navigate various regulations and laws. This can be expensive and time-consuming as youโll need to ensure youโre meeting tax and employment regulations. You also need to comply with any industry-specific regulations. To streamline the process and ensure compliance, itโs wise to engage a professional such as an accountant or a lawyer to assist.
6. Digital transformation
Digital transformation can be one of the key challenges for SMEs, particularly if they lack the necessary resources and expertise SMEs must adapt to digital technologies to stay competitive. Exploring the implementation of new technologies like cloud computing or e-commerce can help you to reach new customers and increase revenue. Moreover, automation can in some cases increase the speed and efficiency of your operations. Treat digital transformation as an opportunity rather than a challenge.
7. Marketing and customer acquisition
SMEs need to invest in marketing and customer acquisition to attract and retain customers. The key is focusing on how you can develop a strong brand and overall marketing strategy. This could mean investing in external help to reach new customers and build your brand.
8. Managing growth
Rapid growth can be a double-edged sword for SMEs, bringing both new opportunities and challenges. Managing cash flow, hiring new employees and scaling operations can all be challenging, so itโs imperative you plan for growth and ensure you have the resources to navigate this growth effectively.
9. Cybersecurity
Like all businesses, SMEs are vulnerable to cyber threats. However, many lack the resources and expertise to implement effective security measures. To protect your data and systems from cyber-attacks, hacking and viruses, you need to invest in cybersecurity services or at the very least, appropriate level security software on any devices connected to the internet.
10. Economic uncertainty
Recent economic volatility and uncertainty has impacted heavily on SMEs, making it more difficult than usual to anticipate changes in consumer demand and supply chain disruptions. This highlights the need for you to prepare for economic uncertainty. Strong contingency planning will assist you to weather any downturns.
Your SME business is likely to face a number of challenges with the potential to impede its success. By having an awareness of the key issues youโre likely to face and mitigating risks through business and contingency planning, youโll strengthen your business, enhancing resilience and positioning it for greater success.
For help with strategic business planning or addressing any of the challenges for SMEs weโve explored above, contact your local William Buck Business Advisor in Australia or New Zealand.
