Common Problems of Small-Scale Businesses

A small-scale business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. In addition to number of employees, other methods used to classify small companies include annual sales (turnover), value of assets and net profit (balance sheet), alone or in a mixed definition.

The smallest businesses, often located in private homes, are called microbusinesses (term used by international organizations such as the World Bank and the IFC) or SoHos. The term “mom and pop business” is a common colloquial expression for a single-family operated business with few (or no) employees other than the owners.

Small-scale businesses are in an enviable position because they have the ability to be agile and fluid in their procedures and practices, compared to larger businesses that have many layers of bureaucracy. However, small-scale businesses face many challenges due to their size, and owners need to address these problems and come up with unique solutions for their small business to survive and prosper.

Difficult to Attract Customers

Small-scale businesses typically have a more difficult time attracting customers than larger companies. They have smaller marketing and advertising budgets. Also, some potential customers are reluctant to do business with small businesses, especially new businesses without a loyal following, since they believe that these businesses may not be around for a long time or that they will not be able to provide the appropriate level of service. A challenge for small-scale businesses is to make sure that they provide excellent customer service and instill confidence in their customers.

Hard to Attract Employees

Small-scale businesses also face challenges when hiring employees. It is difficult for many small businesses to compete with the salaries and benefits that larger corporations provide. Many potential employees are also hesitant to work for a small-scale business because they feel that there is not the opportunity for advancement. If you can’t provide full benefits for full-time employees, you can opt on hiring part-timers or contractuals.

Difficult to Grow

Due to their size, many small-scale businesses find it difficult to grow. They have limited budgets to use for expansion and marketing campaigns. They also have limited human resources to work on growing the company. Small business owners must find creative ways to use their limited resources to grow the business while running the day-to-day operations of the company.

Must Compete Against Bigger Companies

Possibly one of the biggest problems facing small-scale businesses is that they have to compete with much larger companies. Larger companies have bigger budgets and can usually provide products and services at much lower costs. A small business must be able to either match the prices charged by larger businesses or provide extra benefits to the customer such as better customer service.

Difficult to Finance Expansion

Small-scale businesses face challenges obtaining money for expansions. Larger corporation have many more resources available to them to obtain capital to expand, and banks and lenders are much more willing to lend money to a large company with tangible assets that can be used for collateral. Larger companies also have the option of selling shares of stock to the public to raise funds. However, there are already several financing programs offered by the government, NGOs, and banks that caters especially to SMEs.

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