Want to know the biggest challenges facing small businesses? The National Federation of Independent Businesses may have at least a partial answer.
The NFIB’s Index of Small Business Optimism has been an invaluable resource since 1975. They’ve done research on everything — from job openings to labor markets, from capital spending budgets and the cost of inflation; on a monthly basis. Here are the biggest challenges presented in a recent report.
1. Health Care
Bar-none, one of the most challenging aspects of running a small business comes from managing health care for your employees. Without a doubt, your workers’ health is important, but the increased healthcare costs make finances difficult to manage. While “Obamacare” is undoubtedly beneficial for the health of workers, it’s often the business owners that receive the financial blow.
2. Government Regulations
Each year it seems like the government’s collar around owners’ necks becomes tighter. One of those regulations deals with the environment. The Clean Air Act of 1990 forces you to remove air pollutants, and your vehicles’ contribution to smog, gas and other chemicals that crush the ozone layer. While this act isn’t a bad thing, it is a challenge for business owners who don’t have the proper vehicles or environmental-protection know-how.
Another set of regulations that may damper your business is advertising regulations. In this instance, the challenge occurs when the copywriter enjoys artistic license too much… and puts fraudulent claims in the copy. The Federal Trade Commission applies these regulations to both online and print advertising. (In advertising, honesty truly is the best policy. Not only to save your own hide but to provide the service your customers expect; when they see that your business is “the real deal” your ads claimed, you’ll dramatically increase the number of lifetime customers who buy again and again.)
3. Federal Income Taxes
Does it feel like each year federal income tax rates skyrocket? It’s unbelievable. Under current U.S. law, the corporate tax rate is currently 15% on the first $50,000 of taxable income. Expect 25% tax rate on the next $25,000, and a whopping 35% tax on income over $10 million. Knowing your state’s tax rate is crucial for minimizing the costly damage of paying them.
4. The Economy
Not even Wall Street stockbrokers — or so-called “masters of the universe” — do not truly know how the economy is going to pan out. Fortunately, a SBA 504 loancan help you if you plan on purchasing commercial property or major equipment. The SBA 504 loan protects you against the economy’s rising rates, since the loan keeps down your overall finance costs, letting you get the most from tax rates. The uncertainty of the economy’s condition cannot be overstated, and must be treated with the utmost respect; doing so keeps you from taking unnecessary risks.
5. Tax Compliance
When your small business is home-based, home office deductions are vital for keeping profits high. However, regulations concerning record keeping are time-costly and, if you don’t have a penchant for bookkeeping (guilty), frustrating.
If your business makes less than $5 million, you’re allowed to use cash accounting. This is in stark contrast to the more traditional (and complicated) accrual method. The National Federation of Independent Business states that when you invest in your business, Section 179 allows you to instantly deduct the cost of that investment. Therefore, that investment-cost can be re-invested further into your company.
6. Cash Flow
From online invoice software to better budgeting systems and effective cash flow management, this challenge can be overcome. However, virtually everysmall business owner has cash flow problems. One simple tip is to keep strict track of your money, where it’s coming from, and where it’s going.
In “How To Get Rich”, Dennis Publishing founder Felix Dennis had problems getting a loan for his business from a bank. His solution was to keep astute track of his income and expenses. This highly professional bookkeeping impressed the bank, and he finally received his loan.
7. Staying Passionate
In the daily grind of living, it is crucial more than ever to be obsessed with what you’re doing. Otherwise, the quality of your product/services suffers… thereby giving your customers a shoddy experience… which inspires them to take their business elsewhere. That is why obsession is a critical component; when you’re obsessed, working 14-hour days isn’t as big a hassle. Without obsession, you’re more likely to let your small business fold instead of fighting for it. Without obsession, work becomes another mindless grindstone to put your nose to. If you’re still thinking about starting a business, make sure you are selling a product or service that you are passionate about.
8. Not Diversifying Client Bases
I want you to take a good, long look at your client list. If you have any clients who are responsible for more than half of your business income, it’s time to a) generate more clients or b) work better deals for your other clients. When your income has you riding one “whale”, that one whale could dash off to do business with someone else. Leaving you in the ocean, possibly drowning, while your other clients — or “small fish” — and their small incomes. Don’t let your business rely on one client — it’s a recipe for disaster.
9. Growth vs. Quality
In time, a business may boom beyond growth expectations. Small business owners who haven’t planned for this increase in customers and product/service production are liable to fall by the wayside. As demands for your business increase, without the proper systems in place, you’re more likely to come up short and fall short of those demands. This is why it is crucial for you to scale up your business — without sacrificing the qualities that made you such a hit in the first place.
10. Hiring New Employees
Around the nation, many small businesses face employee-hiring troubles. The cost (equipment, benefits, taxes, bonuses, etc.) of hiring new employees, unfortunately, keeps rising. All those hurdles come into play before outlining the position’s salary.
Without employees, a small business cannot run successfully (with the rare exception of home-run businesses). In the event that you can, life would be a lot easier if you had a few employees under the belt. It’s always wise to judge the profit against the cost.
As a small business owner, realizing this one insight is essential for maintaining a calm head: your competitors face the same problems as you do. All of us, regardless of the industry we’re in, are essentially in the same boat. How you respond to these challenges will change the “game” — as you become more successful, thereby leaving your rivals by the wayside. It’s important to remember that these challenges are just that — challenges and people do overcome them.
This article was derived from “Top 10 Challenges Small Business Owners Are Facing Today”, originally posted on SmallBizTrends — you can check it out here.