Small businesses have to face innumerable challenges every day. As they have to work with a tight budget and fewer employees, these companies are the first to be impacted in the face of any adversity or calamity. It becomes necessary to have in-depth knowledge about the factors that can lead to a possible downturn of events.
As per the available statistics of the year 2019, there were 30.7 million small business entities in the United States, which created nearly 1.5 million jobs annually. A firm with less than 500 employees is considered a small business in this country, although it varies in other countries. These entities have helped to generate good revenues and boost the economic condition of their country.
The United States is at the top of the table if you look at brand value or the number of top-notch companies integral to its economy. Small businesses have to put in a lot of effort to survive amongst the big sharks. It is a fact that 20% of the small business entities fail by the end of the first year, and the number increases to 50% and 80% by the end of the fifth and tenth year, respectively.
To survive and grow successfully in these competitive times, a business must know the reasons for failure. The top 10 problems for small businesses in the United States in 2020 are mentioned below-
1. Quality of labor
22% of respondents have chosen quality of labor at 1st position in the list regarding top 10 problems for small businesses in the United States in 2020
A small business entity needs the labor force for the running of its business activities. Labor is one of the crucial factors of production that can drive the supply chain, and it is labor quality that proves a determining factor in economic prosperity.
In the United States, labor is not as good in terms of quality as you will find in other countries. A new or small business can’t outsource labor because of high costs, so it has to do with the available ones.
As per a CNBC report in 2019, 52% of respondents found labor quality as the most crucial issue that a small business was facing. It was becoming challenging for them to hire qualified labor. This has a high impact on running the business that needs the labor force for survival and growth.
17% of respondents have chosen taxes at 2nd position in the list regarding top 10 problems for small businesses in the United States in 2020.
Small business entities are considered one of the most important driving forces behind the United States’ economy. It still has to pay taxes at the Federal, local, and state levels, which proves a huge burden on the entities.
Moreover, business owners should have complete knowledge of tax policies; otherwise, they will have to pay strict penalties.
3. Government regulation and red tape
14% of respondents have chosen government regulation and red tape at 3rd position regarding top 10 problems for small businesses in the United States in 2020.
Small business houses have to deal with a lot of red tape from federal, local, and state governments before starting a business. Regulatory complexity is often a hassle for them.
The regulatory burden often is considered disproportionate on small business entities. An increase in regulation results in a decrease in small business entities and increased large business entities.
The paperwork and compliance burden small businesses as it means less productivity and even fewer profits.
4. Poor sales
13% of respondents have chosen poor sales at 4th position in the list regarding top 10 problems for small businesses in the United States in 2020
Lack of demand in the market is a fundamental reason for poor sales. As per a report published in CG Insights 2019, 42% of small business entities failed as the market demand was deficient, resulting in poor sales. 2020 has been no different as the pandemic has not allowed the small businesses to make headways, and ultimately this has lead to a poor show of the sales department.
5. Competition from large businesses
9% of respondents have chosen competition from large businesses at 5th position in the list regarding top 10 problems for small businesses in the United States in 2020
Competition is the name of the game in every type of business. It becomes imperative to know what is happening in your surroundings if you want to take your entity a step further towards growth and achievements. Not paying attention to your competitor can prove a severe mishap for a small business entity.
Large businesses have the resources to gather data and information regarding existing products, their market prices, profit margins, and any new products that the competitors will be launching shortly. It is a struggle for a small business entity to do so because they cannot afford to spend so much time, money, and effort on their rival companies.
When you do not have information about your competitor in your hands, you cannot adapt and mold your policies regarding products, pricing, promotion, etc., to meet market and consumer demands. This is a huge problem and often results in a setback for the company.
6. Cost/availability of insurance
8% of respondents have chosen cost/availability of insurance at 6th position in the list regarding top 10 problems for small businesses in the United States in 2020
Insurance is a desired commodity of every business house in the United States, but it comes at a high price. The first problem that a small business faces are insurance availability and the second point is the cost of the premium. Both are a burden that the small business cannot cope with, especially at the onset when it cannot afford additional expenses.
7. Cost of labor
8% of respondents have chosen cost of labor at 7th position in the list regarding top 10 problems for small businesses in the United States in 2020
When a country has skilled labor of its own, there is no definite reason for outsourcing from other countries, and labor becomes cheap. The United States is a highly developed country where you will find two primary types of labor.
One is cheap but is of not good quality, and small business entities do not want to hire such kind of local labor. The other one is of good quality but comes at a high price, and the small entities cannot afford it. The cost of a good labor force has been a top problem for small businesses in the United States for a very long time.
6% of respondents have chosen other issues at 8th position in the list regarding top 10 problems for small businesses in the United States in 2020.
Uncertainty often plays a significant role in bringing a business down. This year has been the year of Covid-19, which has resulted in lockdown in various states in the United States at various times.
Small business entities have been one of the casualties of this war. It was challenging for them to survive in such difficult times. As per recently published statistics in Facebook 2020, 70% of small business houses in the United States had to shut down in March 2020 when the pandemic was creating havoc. Even now, 31% of them are not in an operational mode.
2% of respondents have chosen inflation at 9th position in the list regarding top 10 problems for small businesses in the United States in 2020.
Small business entities are unable to survive in the first year because of inflation. Sometimes small business entities do not consider it a significant threat and fail to consider all related aspects. Without preventive measures at the onset, it can prove disastrous and become a severe threat in the long run.
10. Finance and interest rates
1% of respondents have chosen finance and interest rates at 10th position in the list regarding top 10 problems for small businesses in the United States in 2020
Finance is another important reason why a small business entity often fails. Small entities do not have the luxury of strong financial backing, and it is a struggle for them to make ends meet.
In most cases, they run out of cash, and it becomes difficult to meet business demands appropriately. If an entity tries to borrow funds, then the rate of interest in the United States is also high. In this case, if a small business does not take a loan, it will lead to further loss, and if he takes one, he has to pay huge interest rates, and ultimately it becomes a loss of revenues.
Small businesses need to grasp all the available advantages in today’s landscape to facilitate growth and development opportunities. The latest technology, innovative tools, and hiring expert talent are some ways to handle, mitigate, and overcome the problems that small businesses can face in the United States.