According to research carried out by Experian, half of all new UK businesses fail. The numbers confirm that 4% of businesses shut up shop within the first year of trading. 34% close before the end of year two. And 50% have failed before the end of year three.
That makes for pretty depressing reading, but the point is – we’ve all been there. In fact, the last couple of years have seen more businesses than ever forced to make some very tough choices. The number of business insolvencies rose by more than 52% between 2021 and 2023 with many owners blaming Brexit, smaller budgets and the lingering impact of Covid.
Pretty much every small business will face a fight to stay afloat at some point. Whether that’s in years one to three or later down the line, it’s a fact of life that running an SME is very rarely plain sailing.
Steering the ship can be a challenge for even the most passionate business owner. But when things start to go wrong, frustration and apathy can set in. It’s hard to see a way out. And you wonder if there is any point even trying. We get it and we’re here to help.
Here are the most common challenges that small businesses face – and how you can sidestep them, address them or avoid them entirely to put your SME back on the right path.
1. Late payments
Late payment culture is one of the main reasons that small businesses find themselves struggling. Late payments cause huge issues with cash flow and leave small businesses seriously out of pocket. Chasing for payment can also be time consuming, taking attention away from other vital aspects of running a business.
Liz Barclay, the Small Business Commissioner for the UK says that late payments can make or break a business. She is campaigning for new legislation which would help to improve payment terms for small businesses. “It’s vitally important that all big customers pay their suppliers along the supply chain as quickly as possible,” she says.
“Late payments and extended payment terms add to those businesses’ woes and are often the straw that brings vital businesses to their knees. We must … improve payment practices to help all the firms we deal with pay their bills, play their part in growing the economy and stay solvent.”
How to overcome this challenge
We’ve shared a series of tips for tackling late payment issues. Suggestions include broadening payment options for clients, requesting deposits upfront and being clear that late payment penalties will be applied as allowed by law.
2. The great talent shortage
Small businesses are the backbone of the UK economy, accounting for 99% of the private sector.
Goldman Sach’s Small Business Manifesto confirms that SMEs employ over 16.7 million people, helping local communities to thrive and families to put food on their tables. SMEs also contribute around half of the UK’s GDP. However, a persistent skills shortage is exhausting. It limits growth, hampers productivity, makes recruitment an expensive and time-consuming hassle and in some cases, could contribute to business failure.
Talented teams drive small businesses forward but 55% of business leaders say they can’t recruit the talent they need to progress. Sound familiar? If you’ve despaired at the lack of basic skills amongst your talent pools and job candidates, pretty much every other owner and manager feels the same.
In fact, according to Goldman Sachs research, just 12% say the education system is equipping students with the skills they need to survive in the workplace. A lack of vocational training in areas like construction, trades, social care and technology, along with too much emphasis on exam results ahead of practical skills means many businesses simply can’t find the right people for their vacant jobs.
Of course, it isn’t just the education system that is hampering talent development. The impact of Brexit can’t be forgotten. Businesses in agriculture, hospitality and healthcare who previously relied on workers from overseas have found it particularly hard to recruit.
How to overcome this challenge
A lack of skilled workers is particularly difficult to overcome. In addition to looking at recruitment policies and salary tiers, you could consider more practical solutions such as upskilling existing staff, offering further education opportunities and investing in training internally. You may also want to consider participating in mentorship and apprenticeship schemes to help develop a new generation of skilled workers.
3. Increasing costs
Increasing costs are a major factor in small business struggles. The impact of inflation and the cost of living can’t be underestimated but other direct price rises such as higher gas and electricity costs, the increased costs of raw materials, rent increases and rises in national insurance payments can also be a death knell.
When it seems like everything costs more, it’s tempting to put your own prices up, but this can have a negative impact when everyone else is also thinking of ways to save money. It could be your own price increase – while justified – gives your customer pause for thought. If they can’t afford to pay the new price, they’ll go elsewhere, meaning you lose business.
How to overcome this challenge
The challenging economic landscape is a problem that all businesses share and it’s one that has no easy fixes. There are steps you can take to improve your cash flow and save money. We’ve shared lots of ways to identify hidden costs sapping your cash flow and ways you can save money. Top tips include shopping around for new utility suppliers, cancelling unused subscriptions and introducing energy saving technology such as smart lighting to cut costs.
If you need further support
Punk Business Loans are a fast, convenient and more accessible alternative to traditional business finance. We’re not like your usual high street bank. We understand what it’s like to be in the trenches as a small business owner. We don’t demand complex business plans and a perfect credit score.
Our business loans application process is quick, simple and straightforward. Whatever your business needs an injection of funds for, we can help. Talk to us now to secure your business future.
