Small businesses often face a variety of issues, some of which are related to their size. One of the frequent causes of bankruptcy is undercapitalization. This is often the result of poor planning rather than economic conditions. A common rule of thumb is that an entrepreneur should have an amount of money at least equal to the expected revenues for the first year of business plus expected expenses. For example, potential owners who expect $100,000 in revenue in the first year with $150,000 in startup expenses should have at least $250,000 available. Start-up expenses are often significantly underestimated which increases the workload. Failure to provide this level of financing to the company may result in the owner being held liable for all of the company's debts in bankruptcy court under the undercapitalization theory.
In addition to ensuring that the company has sufficient capital, a small business owner must also consider contribution margin (sales minus variable costs). To break even, a company must be able to reach a level of sales where the contribution margin equals fixed costs. When they first start out, many small business owners undercut the prices of their products to the point that even at maximum capacity, it would be impossible to break even. Cost controls or price increases often solve this problem.
In the United States, some of the biggest concerns for small business owners are insurance costs (such as liability and health), energy costs, taxes, and tax compliance. In the UK and Australia, small business owners tend to be more concerned with perceived excessive red tape.
Contract fraud has been a persistent problem for small businesses in the United States. Small businesses are legally required to receive a fair portion (23 percent) of the total value of all major government contracts as mandated by the Small Business Act of 1953. Since 2002, a series of federal investigations have uncovered fraud, abuse, loopholes, and lack of oversight in business contracting. Small federal law, resulting in billions of dollars in small business contracts being transferred to large corporations.
Another problem for many small businesses is called the “entrepreneurship myth” or e-myth. The mythical assumption is that an expert in a particular technical field will also be an expert in running that type of business. Additional business management skills are needed to keep the business running smoothly. Some of these misunderstandings arise from a failure to distinguish between small business managers as entrepreneurs or capitalists. While almost all small business owners and managers are required to assume the role of capitalist, only a minority will act as entrepreneurs. The line between owner, manager and entrepreneur can be determined by whether or not their business is growth oriented. In general, small business owners focus primarily on survival rather than growth; Therefore, not experiencing the five stages of the business life cycle (birth, growth, maturity, recovery, and decline) as an entrepreneur does.
Another problem for many small businesses is the ability of larger companies to sometimes influence or determine their chances of success. Business networking and social media have been used as a major tool by small businesses in the UK, but most use a “scattergun” approach in a desperate attempt to exploit a market that is not succeeding. More than half of small businesses lack a business plan, a tool that is considered one of the most important factors for project success. Business planning is associated with improving growth prospects. Financiers and investors usually ask for a business plan. The plan also serves as a strategic planning document for owners and executives, which can be used as “gospel” for decision making
An international trade survey showed that the UK share of exporting businesses rose from 32% in 2012 to 39% in 2013. Although this may sound positive, growth is actually slow, with small business owners shying away from exporting due to physical barriers. And the plasmodium. Learning the basics of a foreign language may be the solution to opening doors to new business markets, as it is a fact that not all foreign business partners speak English. It is reported that China is growing by 7.6% in 2013 and still 95% of business owners who want to export to China have neither the desire nor the knowledge to learn their local language.
Bankruptcy
When a small business fails, the owner may file for bankruptcy. In most cases, this can be handled by filing for personal bankruptcy. Businesses can declare bankruptcy, but if they go out of business and secured creditors are likely to repossess the company's valuable assets, there is little benefit to going into corporate bankruptcy. Many states offer small business asset exemptions so you can continue operating during and after personal bankruptcy. However, company assets are usually not excluded; Hence, it may be difficult to continue operating an incorporated company if the owner files bankruptcy. Researchers have examined small business failures in some depth, with attempts to model the predictability of failure.
Social responsibility
Small businesses can face many problems related to engaging in CSR, due to characteristics inherent in their size. Small business owners are often heavily involved in the day-to-day operations of their companies. This results in a lack of time for the owner to coordinate social responsibility efforts, such as supporting local charities or non-profit activities. In addition, small business owner expertise often falls outside the scope of socially responsible practices, which can contribute to a lack of engagement. Small businesses also face a form of peer pressure from larger forces in their industries, making it difficult to oppose and work against industry expectations. Furthermore, small companies are subject to pressure from shareholder expectations. As small businesses have more personal relationships with their sponsors and local shareholders, they must also be willing to withstand closer scrutiny whether or not they want to share in the benefits of adhering to socially responsible practices.
Job quality
While small businesses employ more than half of the U.S. workforce and have been established as a major driving force behind job creation, the quality of the jobs these businesses create has come into question. Small businesses generally employ individuals from the secondary labor market. As a result, wages in the United States rose by 49% for employees of large companies. In addition, many small businesses struggle or are unable to provide employees with the benefits they would receive at larger companies. Research by the U.S. Small Business Administration indicates that employees of large companies are 17% more likely to receive benefits including salary, paid vacation, paid time off, bonuses, insurance, and retirement plans. Lower wages and fewer benefits combine to create a job turnover rate among small businesses in the United States that is three times higher than among large companies. Small business employees also have to adapt to the high failure rate of small businesses, which means they are more likely to lose their jobs due to the company's collapse. In the United States, 69% of small businesses have been operating for at least two years, but this percentage drops to 51% for businesses up to five years in operation. The U.S. Small Business Administration counts companies with sales of up to $35.5 million and 1,500 employees as “small businesses,” depending on the industry. Outside of government, companies with sales of less than $7 million and fewer than five hundred employees are widely considered small businesses.
Cybercrime
Cybercrime in the business world can be divided into 4 main categories. They include loss of reputation and consumer confidence, the cost of fixing the problem, loss of capital and assets, and legal difficulties that can result from these problems. Reputation loss and consumer trust can be significantly affected after a single attack. Many small businesses will struggle to gain trust in their customers after having been known to have problems in the past. The cost of fixing a cyber attack may require experts outside their field to further investigate and find the problem. Being frustrated in a business means losing money at the same time. This may halt online operations and potentially mean downtime for an extended period of time. The loss of capital and assets correlates well with the cost of fixing the problem. During a cyber attack, the company may lose money for this business. Worst case scenario, the company could lose virtually all of its working capital and cash. The legal difficulties associated with cybercrime can become expensive and damaging to the company itself because there are no standard security standards and standards. Security is not only for the business but more importantly for the customer to be the first priority when dealing with a security protocol.
Monetary damage from cybercrime in 2016 amounted to more than $1.33 billion in the United States alone. In 2016, California alone had more than $255 million reported to IC3. This year in the United States, the company averaged $17.36 million in cybercrime attacks. Some cyber attacks can vary depending on how long it takes to resolve the issue. It can take up to 69 days for an average daily attack on a business. Types of attacks include virus and malware issues. Employee activities within a workspace can also lead to a cyberattack. Employees using mobile devices or accessing remote work outside of the job makes it easier for a cyberattack to occur.
Marketing plan
Market Research – To produce a small business marketing plan, research must be conducted on similar businesses, which should include desk research (conducted online or using directories) and field research. This gives an insight into the target group's behavior and shopping patterns. Analyzing competitors' marketing strategies makes it easier for small businesses to gain market share.
Marketing Mix - Marketing mix is a crucial factor for the success of any business. Examining competitors' marketing mix can be very useful, especially for a small business. The right market mix, using different types of marketing, can help increase sales.
Product Life Cycle – After starting the business, the critical focus points should be the growth phase (adding customers, adding products or services, and/or expanding into new markets) and working toward the maturity phase. Once the business reaches maturity, an extension strategy should be put in place. A reboot is also an option at this point. Pricing strategy should be flexible and based on the different stages of the product life cycle.
Promotion Techniques – It is best to keep promotion expenses as low as possible. “Word of mouth”, “email marketing”, “print ads” in local newspapers, etc. can be effective.
Distribution Channels – Choosing an effective distribution channel may reduce promotional expenses as well as overall expenses for a small business.
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