What are the challenges starting a new business?
There are many challenges starting a new business, but in the end there are many rewards to look forward to also.
One thing is for sure is,the demands on your time are usually under estimated and many new entrepreneurs under-estimate the financial requirements of starting a new business too.
Having just been on the radio this afternoon, and the subject was “thoughts on the challenges starting a new business”, which led me to writing this article. I have listed as many of the challenges that I can think of, as follows:
1. Is the idea good enough?
First things first, the idea or reason behind the business needs to be a sound one. There is no point you putting up your own money and/or giving up your day job, only to finds that the business your are about to start is not sound. So the recommendation is…do your market research.
2. Does the business you are starting involve a passion?
Starting a new business is a challenge for anyone, but if the business you are running does not involve something you are passionate about, this will continue to be a huge challenge for you, as it will involve long hours and hard work. So the ideal is to find something that doesn’t actually feel like work, so that when you are working those long hours, it doesn’t matter.
3. Obtaining ‘Business Finance‘
In today’s business arena it is hard enough for established businesses sometimes to obtain finance from the likes of banks. And to a degree banking finance for small businesses has almost disappeared, and has been replaced by sources like crowd funding. So if it’s hard for an established business to raise finance, then it is even harder for a new one to raise money. This is where it is important to either have some of your own money, or have some good friends or family to come to your rescue. This can and will make those opening months or years more difficult, but if you keep an eye on your finances and prepare good cash flow forecasts, back up by a sound business plan, there’s no reason why you shouldn’t succeed.
What is holding a start business from obtaining finance is the level of risk associated with new businesses. Whether a business is looking for bank finance or investment capital, this risk of succeeding is reduced for each year that passes, and especially once the business has been able to make a profit.
4. In it for the long-term
At the outset it is exciting setting up in business for the first time. However, it is important to stick this out for the long-term, as it can get quite difficult, as you begin to face those business challenges that will inevitably come your way. Having a ‘Can Do’ attitude is essential for running a small business, as it can become a bit of a roller coaster ride some times.
5. Hard work
I’ve already alluded to the hard work that is involved in running a business. It can be long hours, and in particular at the beginning of your journey when you may not have and staff or perhaps a few to help you run the business.
6. Long hours
Many new business owners start out because they want to have freedom from a boss breathing down their neck. However, what they don’t realise is that although running a business means you are you own boss, it can involve long hours. What you find is that if it needs to be done, you as the business owner may need to do it, otherwise it never gets done. You will find that you will be working longer hours than your employees. Also depending on what you were doing prior to setting up your new business, the hours you used to work whilst employed will sometimes pale into insignificance in comparison.
You need to be careful that fatigue doesn’t set in and make sure you don’t get what’s know as ‘burn-out’.
7. The buck stops with you
Leading on from the long hours you need to work, this is sometimes due to the fact that the buck stops with you. As the business owner, you are ultimately responsible for everything. From customer care at the top, right through to health and safety and employment law. That’s not forgetting to mention making sure the accounts and taxes are all up to date. If anything goes wrong with any of the above, you will be the one that ultimately picks up the pieces. There will be no one to blame and mostly no one to turn to.
8. Lonely at the top
Running a small business, and especially if you are a sole owner/director, there is no one in the business that you will be able to talk to about certain subjects or things that come up. This is why the saying ‘it’s lonely at the top comes from‘. If your business is suffering cash flow problems, the last people you want to know about this is your staff, as they will get worried and may leave. At the point you decide you want to sell you business, this is something you can’t really discuss with your staff either. There are many subjects like this that are a taboo subject that you can only discuss with fellow business owners. There are organisations or groups you can join to alleviate this type of problem. You might consider joining the Institute of Directors or IoD, where you’ll not only receive a number of benefits, but you will be able to mingle with like-minded individuals. However, you will need to have incorporated your new business in order to join.
9. Time management
At the outset, and sometimes down the track, business owners have to do everything themselves. This can lead to them spending unnecessary time on things that don’t help the business grow. Ultimately you want to be ‘Working On’ the business, rather than ‘Work In’ the business (see below), which is where delegation is so important. As part of your business planning you should decide at the outset what roles should ideally be done by employees, which will free up your time to focus on growing the business.
11. Lack of delegation
In the start-up phase of your business, it is likely that you will have to do many of the tasks required to run a successful business. Entrepreneurs find it difficult to delegate, as they know that if they do something it will be 100% right. However, they are worried that if employees do it, mistakes will happen. This leads to a lack of delegation, which means business owners end up working even longer hours than they need to. However, as a part of the business plan, make sure you do set up a management structure, with key roles identified, so that when the time comes and the business can afford it, you can employ a person in that role.
12. Having an ‘Understanding Family‘
As a result of running a business, as already mentioned there are long hours of dedication and slog. It’s almost impossible to have a successful business without spending long days and sometimes 7 days a week working hard. So for this to work, you need an understanding family. So if for example you are married, you wife or husband will need to be understanding of the long hours of hard work you need to put in.
Also, if you have children, you may have to sacrifice seeing your children to a large degree, in order to devote your time to the business.
13. Cash flow management
Managing your cash flows and making sure you have enough cash in the bank is something that all businesses, both new and old, have to keep an eye on. However, with a newly started business, this is even more of a challenge, as everything is new to you. Making sure you have prepared business plans and done some good cash flow projections, and you follow these from month to month, things should work out okay. This is made easy by having some easy to use software for the job, so that you can focus on running the business, instead of trying to work out complicated spreadsheets.
Ultimately keeping on top of your customers is a challenge and having to be tough with them is sometimes difficult for business owners. However, you must make sure you have good cash inflows, in order to have enough cash to cover the bills as and when they fall due.
At the outset of starting a new business, unless you have excess working capital at the outset, a business owner may even need to continue working a job to keep the cash coming in to pay for personal living expenses.
14. Lack of knowledge and know-how
When you run a business you are expected to know everything, from ordering your raw materials or products, through to how to sell them to customers. You are also required to know all the laws of the land pertaining to business, to health and safely, employment law and so on. One of the challenges in starting a business faced by entrepreneurs is the huge learning curve they face. So unless you already possess some of this information already from your past experience, you are going to need to learn fast. The alternative to this, is to buy into a franchise, where you have plenty of support and training, as a part of the franchise set up. Also, it is sometimes easier to obtain finance for a franchise.
It might be that you have a strong product knowledge for your industry, but lack the skills needed for marketing or in managing staff, which is a whole new challenge in itself.
15. Staff management
The first time you take on staff, you will realise that this presents its own challenges. There are many challenges associated with employment, not least the huge Human Resources (HR) legislation that needs to be followed. However, this all takes time and can cost you money, if you have to hire in help on this area of your business. The important point to note is that if you get this wrong, it can cost your business hugely.
16 Personal health
A huge factor which is some times overlooked or missed in business is personal health. One of these factors is stress, as it can be extremely stressful running a business. What also happens is the new entrepreneur will end up not exercising and/or not eating very well, which compounds the health issues associated with the stress. Getting the balance right between the hours you work in the business, and you personal life is critical to running a successful business.
17. Developing the ‘Vision‘
Entrepreneurs are great at envisioning a business and at making a change. We would not have most of the things we now take for granted in life without entrepreneurs and inventors. Take the Wright Bothers who saw it all the way through to giving us the first aeroplane, which is now the norm. But back then they would have stood against huge opposition, as people did not think it possible to fly. As an entrepreneur you need to be able to see past any opposition and push on regardless.
18. Business location
They say that location, location, location is key to a good business. This is particularly important for retail businesses, as you want to get the foot fall to generate the right level of business. However, the challenge for a new business is finding the right retail space, plus getting a good spot can be very expensive.
19. Website and web traffic
A young website which has yet to be ranked on the various search engines, and in particular Google, will receive little or no traffic. The only way around this initially is to pay for traffic by the way of pay-per-click or paying for Facebook adverts and so on. This can become costly for a new start-up business, so the challenge is to make sure you have enough funds for this form or marketing and advertising. You must also ensure that you budget for this type of expenditure, and not under-estimate the level of spend that will be required.
It is vital that you focus on making sure you get a good click-through rate, but even more important, you must make sure you convert the traffic that does visit your website. Otherwise this is an expensive source of website traffic that visits and leaves again without buying from you.
20. Finding good staff
Finding the right employees is hard enough for a well established business, so for a new business this becomes harder. This is especially true if you are not used to interviewing for new employees. Using employment agencies is costly, so you may find that this is cost prohibitive for your new business. However, adverts for employment in newspapers is particularly expensive, and usually more expensive than marketing type adverts.
This is where you may need to become a bit more creative and these days using LinkedIn is ideal. However, this does depend on the industry you are in and the type of staff you are looking for. Finding the staff is a challenge to begin with, but then you need to find the ones that are going to be hard-working, conscientious and trust worthy.
21. Finding the ‘Right Customers‘
As a business, a useful exercise is to work out what is the ideal customer for your business. So at the outset the challenge is to work this out, which can be difficult when you are just starting out. There will be a bit of a learning curve until you realise that there are always those customers that will look for the slightest chink in the armour, the will look for loopholes in your company policies. There are some customers that no matter how well you treat them, they will exploit you. Unfortunately, this is something that is learnt over time, and also very difficult to eradicate all together.
Be prepared to sack bad customers, as they can be poison, they will drain your energy and that of your staff, they will deliberately damage your reputation and goodwill, and usually this is simply to get some money off or to get something for free. Worst still, they are looking to sue you for money. The challenge for a new business is working this our fast.
22. Unforeseen challenges
There are always those things that are unforeseen in life, so with business this is no different. This could be an unexpected expense or it could be you’d under estimated how long something might take to happen. I remember when I began my Chartered Accounting Practice, I’d budgeted for so many clients coming on board, but I got the timing wrong in terms of how soon I would bill them. This affected my cash flow quite badly, because I might take a client on who was looking to change accountants, but when the work began might be a few months later and so on. So when it comes to cash flow and profit forecasts, try to run as many what if scenarios as you can, and look at some worst case scenarios.
23. Keeping an eye on the competition
The competition should never be under estimated, and depending on your industry, they could try to make things difficult for you. I read Richard Branson’s book where he talked about introducing Virgin Cola and went into battle with Coke. He admits that this was the wrong thing to do and he lost. So be careful which battles you choose and be aware of what the competition are doing. Established businesses never like new competition on the block, so it is some times more challenging to be new in the area.
However, competition is also a good thing, especially if you are starting out, as it does at least mean there is a market for your product or service you are setting your business up to supply.
24. Beginning with the ‘End in Mind‘
It is good advice for business owners to set their new businesses up with the end point in mind. What is the exit strategy? This can be a challenge, as there are so many unknowns at the outset, but by setting your end point, you have a target to aim for.
25. Client dependence
If there is one thing that could seriously affect the value of a business, then that is one that has one client where the sales to that client represent a larger that 20% of turnover or sales. No business should be heavily dependent on one or very few clients, as makes a business vulnerable. If that major client pulls the rug, the business could fold. I’ve come across this many times in my experience in business where businesses are hugely dependent on one large customer, the customer decides to go elsewhere and the business is left picking up the pieces.
I remember one client I had when I have my Chartered Accounting practice describing it as turning the Titanic, as they lost a customer that represented some 70-80% of their turnover. They had staff to let go, they had the overheads to match that size of business, and so on. This can therefore be a short-term challenge at the outset, as a new business is looking for new clients to get going and each one may represent a large percentage of the new businesses turnover.
26. Business ‘Owner Dependence‘
Another big factor used in business valuation, is in how dependent the business is on its owner. In the early stages, the valuation is not usually a problem, as ordinarily the business founder is not looking to sell in the first few years. However, in the first few years it is normal for a business to be heavily dependent on the owner, and the challenge is to take steps to address this. Unfortunately though this doesn’t always happen and you end up with burnt-out business owners.
Most, if not all entrepreneurs and business owners like to be in control. This is something that is almost built into their DNA. So letting go of control is a huge challenge that business owners face when deciding to grow a business. The dilemma the business owner faces is the point at which they can let go on control, but sometimes this is not only good for the business, but it is very good for the entrepreneur themselves.
We are all aware of prejudices in the world, be this against your sex, religion or race. Business is no different and although this is something that can and does affect larger organisations, with a smaller operating, if a prejudice exists, this could be amplified further. The only advice I can give here is to be determined no matter what you come up against, and if in doubt watch the film Selma. This is an excellent film on the one hand, but on the other quite upsetting too, however, it does show that dogged determination will win through in the end. This film provides a valuable lesson to us all.
29. Understanding accounting information
A vital part of running a small business is to understand the numbers. Not many business owners are accountants by trade, so to them understanding a profit and loss account or a balance sheet is too complicated. However, having a better than average understanding of both will be an advantage to any new entrepreneur. This adds a further challenge of having the time to learn how to interpret a set of accounts sufficiently to understand what is going on financially with the business.
One of the keys to a profit and loss is to understand what products or services are making a profit, and by how much. So understanding gross profit margins is a key metric to learn and understand.
Having a reasonable understanding of your profit and loss figures would also enable you to take a look at our Increase Profit Software, as this is a great tool to help a business grow. However, having said that, in order for it to work you need to have ideally 12 months trading first.
30. Over trading
Over trading is where a business expands too quickly and it’s not getting enough cash in for sales in order to pay for outgoings like stock and other business costs. What ends up happening is the business runs out of working capital and ends up having to borrow. The business then has the added cost of an interest expense to cope with. Over trading is often a symptom suffered by new start-up businesses, and needs to be carefully managed.
31. ‘Work In‘ the business rather than ‘Working On‘ the business.
As already mentioned in the ‘Time Management heading, business owners get locked into ‘working in’ their businesses, when actually they should be focusing on ‘working on’ their business. It is a real challenge not to get sucked into dealing with customers or sorting out that HR issue, or even doing the filing, when you know your time is better spent stepping back and addressing your business plan. If you don’t take time out at least to review your business and review it at the top-level of where it is going, you will end up going around in circles.
What I suggest is that you do this type of exercise away from the business, so set aside some ‘working-on time’ in your diary. Use this time to look at your original business plan, compare this to what’s happened to date and how you can update the plan. Make sure you look at preparing a new plan after your first 12 months have passed, in order to review growth.
I think this list is complete as far as I can work out for now. If other ideas come to me, I will update this blog post and ass them to the bottom of this list of challenges starting a new business.
One thing is for sure, from the many business owners that I’ve met, most are resilient and strong. Most entrepreneurs will overcome most challenges they face, but knowing what they might be upfront is a help.
As always thank you for taking the time to read my blog and if you like what you’ve read, please share it with others.