As we head toward the finish line in 2018, small businesses have begun the process of closing their books. Across the U.S, small business owners and decision-makers are preparing their year-end business review to assess their performance for the last 365 days. Once the books have been closed, all thoughts begin to turn toward 2019.
Why Small Businesses Are The New Engines Of Economic Growth
In 2009, the U.S. economy was in a freefall. Nearly 8 million jobs were lost from 2007 to 2009. The stock market lost trillions of dollars in wealth. People not only lost their jobs, but they also lost their homes. The once-mighty U.S. automotive industry was reeling from the effects of the global recession.
Then-U.S. President Barack Obama called upon the small business owner to help stimulate growth in the economy.
Obama referred to the small business sector as “the backbone of the American economy” and introduced a stimulus package from two American Reinvestment and Recovery Acts that pumped in nearly US$1 Trillion to help budding entrepreneurs cope with the recession.
Politics aside, it should be of no surprise why Obama viewed the small business sector with such high regard.
In 2016, the US Small Business Administration (USSBA) reported that there were 5.6 Million employer firms. Of these businesses, 99.7% had fewer than 500 employees. These firms are classified as “small business” and in 2016, small businesses helped generate more than 1.1 million new jobs.
Small businesses increase aggregate demand and spending which help stimulate growth in the economy. If the economy is strong, more jobs are created and made available to the labor force.
That is why the small business sector is the new engine of economic growth.
The 7 Biggest Challenges Facing US Small Businesses In 2019
In comparison to big businesses, small business owners are more vulnerable to adverse changes in the economy. For the reason that they operate with tighter budgets and have smaller profit margins, the success of a small business is more sensitive to factors that affect cost and consumer behavior.
The failure rate of small businesses is quite high. According to the USSBA, 50% of US small businesses fail within the first 5 years and only 25% make it past 15 years. There are a number of reasons why small businesses don’t succeed. Among them are as follows:
- Lack of Money Management Skills
- Poor Business Planning
- Rigid Business Modeling
- Lack of Marketing and Promotional Activities
- Expanding Too Soon
In view of these factors, the key to achieving success in 2019 is enhanced foresight. Thus, you should anticipate the conditions, situations, and events that could have an effect on your business performance so you could be prepared to address them in 2019.
We don’t have a crystal ball or a time machine at Mountaintop. However, we have met and have had interesting – often lively – discussions with our clients. Our talks centered on what 2019 could possibly hold for small business owners.
Here are 7 of the biggest challenges facing US small businesses in 2019:
1. Rising Interest Rates
When starting a business, you need money to capitalize your operations and for working capital for at least 6 months. How will you fund your business? Where will you get the money to keep your business afloat?
Among the options available for small businesses include bootstrapping, getting partners, securing funding from sources like Angel Investors or Kickstarter. The most utilized avenue is to get a business loan from the bank.
Rising interest rates will affect the cash flow of the small business owner. You could probably negotiate an arrangement where payments for the principal amount would only come in during the second year.
However, if the performance of your business does not improve significantly, the increased cost of amortization will become a bigger burden on your cash flow. Rising interest rates will also affect small business owners who accumulated credit card debt in order to fund their business needs.
The US Federal Reserve increased its benchmark rate from 2% to 2.25% last September. Fed Chairman Jay Powell is not concerned about the rate increase because the rates are still relatively low and should not discourage small business owners from seeking bank loans.
The Fed is eyeing 3 interest rate increases in 2019 and one more in 2020.
2. Hiring the Right People
Whether you are looking to hire 5 or 500, finding the right people to help you run your small business can be tough.
The keyword in the preceding statement is “right”. You want to hire people who are “right-fit” for your business. This means people who are aligned with your own values, embrace your purpose, and therefore, subscribe to your vision.
Finding right-fit people has less to do with their technical and fundamental competencies and more with their behavioral attributes. When we speak about “attributes”, we are referring to soft skills. These are the personality traits that make an individual a perfect fit for your organizational culture.
In fact, more companies are placing greater emphasis on soft skills rather than technical or hard skills.
Would you prefer to hire someone with the highest job recommendations and achievements but is socially disruptive to your organization or someone with modest accomplishments but is willing to learn and stay dedicated to the fulfillment of your business objectives?
People who share your values, purpose, and vision are potential leaders that can be developed within your organization. They will help your business navigate through the toughest economic periods.
3. Healthcare Costs
Healthcare costs are the problem of small businesses that have more than 50 employees because the law mandates them to provide adequate healthcare benefits.
The Commonwealth Fund which studies the healthcare systems of countries around the world has ranked the United Kingdom, the Netherlands, and Australia as having the best coverage.
In its most recent study, the Commonwealth Fund has ranked the United States’ healthcare system as the worst performing even though America spends the most.
In 2016 alone, more than 27 million Americans did not have insurance coverage because they either could not afford it, live in a state that would not expand Medicaid coverage, or were undocumented.
Healthcare costs are also being driven up by rising administrative expenses. There is just too much bureaucracy in the US healthcare system. Doctors are spending so much time reconciling claims with insurance companies.
Unfortunately, it does not seem that healthcare for Americans is going to get better as we head toward 2019.
The Trump administration appears to be more motivated to discredit Obamacare than finding ways to improve it. As a result, healthcare has become a political issue that has polarized many of the federal states.
4. Increasing Revenue
As the popular saying in business goes, “If you want to make more money, you have to be willing to spend more money.”
For the reason that they have tighter budgets and limited access to capital, increasing revenue is a bigger challenge for small businesses compared to large businesses.
Small businesses need capital to fund new products and services; run digital and traditional marketing programs, finance expansion projects such as the opening of additional branches or outlets, and to improve infrastructure.
It is difficult for small businesses to become more aggressive in their business development programs without access to more capital. Unfortunately, most banks and lending institutions are stricter with small businesses than large businesses.
5. Aligning Business Practices with Changing Customer Behavior
According to a report published by Gartner entitled, “Top 10 Strategic Technology Trends for 2019”, businesses need to factor in changing consumer behavior in their development plans for 2019.
The Gartner study revealed that consumers who are part of the Millennials and Generation Z demographic will be influential in the coming year. These groups tend to patronize businesses that have a conscience for society as well as the environment.
Similarly, Millenials and Gen Z’ers will distance themselves from businesses they perceive as not having corporate governance; values, ethics, and practices that contribute to worsening social and environmental issues.
The findings of the Gartner report are supported by a separate study conducted by Deloitte entitled “The 2018 MIllennial Survey”.
The Internet and social media have given consumers the platform to be seen and heard. Small business owners have an advantage that large businesses do not have.
When a business transitions from small-scale to large-scale, it also creates a more decentralized structure. The owners drift further and further away from their customers as these tasks are left to managers who are hired to handle customer service.
As a small business owner, try to stay more involved and engaged with your customers. Make yourself more accessible through social media, your blogs, and of course, your website.
By staying active and involved with your customers, you will be able to give your business a personality the market can trust and identify with.
6. Improving Profitability
Earlier we discussed the challenge for small businesses to increase revenues in 2019. Revenue is just one part of the profitability equation. The other variable is cost.
For a small business to remain profitable in 2019, it should not only focus on increasing revenues. Likewise, it should find ways to streamline costs. In times of economic uncertainty, companies will cut costs in order to remain profitable.
Even if sales are increasing, margins can be compromised if the costs of production are increasing.
A proven way of streamlining costs without compromising the quality of production is outsourcing. This is the process whereby select tasks and responsibilities are delegated to a qualified third party.
For example, instead of setting up an in-house Digital Marketing team whereby you have to hire a certified Digital Marketer, content writers, graphic designer, web designer, SEO specialist, and social media marketer, why not outsource Digital Marketing to a qualified third party like Mountaintop Web Design?
We have a team of experienced and expert web designers, programmers, digital marketers, SEO specialists, graphic designers, and content writers who can run your online campaigns.
With an in-house Digital Marketing team, you will have monthly recurring expenses such as salaries, benefits, rent, office supplies, and Internet services. By outsourcing the service to us, you will only pay for actual services rendered.
By outsourcing services, you can lower your operating costs by as much as 80%! Other responsibilities that are popularly outsourced are accounting, customer service, IT, and telemarketing.
7. Improving Data Security
The threat of being hacked and infiltrated by cyber-criminals is an everyday reality. These cyber-criminals have been enjoying a windfall in the last 2 years. For the reason that the hacking business has remained profitable, you should expect cyber-criminal activity to become even more aggressive in 2019.
Thus, small businesses should consider investing more in cyber-security measures. You should find ways to fortify your website and ensure the protection and integrity of business data.
Here are 5 important statistics on cyber-attacks that all small business owners should be aware of:
- Small business owners are the target of 43% of cyber-attacks.
- Your business might close down 6 months after a cyber-attack.
- During the period from May 2015 to May 2016, 55% of respondents in a small business survey report having experienced a cyber-attack.
- 58% of respondents claim they are concerned about a cyber-attack in the future but 51% have no plans of allocating a budget for cyber-security.
- Only 38% of small business owners regularly update software programs.
If you own a WordPress website, you should consider signing up for our Extreme WordPress care programs. These are customized sets of repair and maintenance packages that have been put together by our web development team.
We will take care of your website for you while you go ahead with your day’s regular schedule. You can go to sleep knowing that your website is in good hands and protected against threats posed by cyber-criminals.
Regardless of how your business performed in 2018, the New Year will always bring forward a great feeling of anticipation. Even though 1 January 2019 is just another day in the life of the business, as far as the books are concerned, it is a new chapter.
The New Year brings in hope; a promise for a better year and the anticipation of new challenges for businesses but particularly for small and medium-scale enterprises.
If you enjoyed this article, please feel free to share it with your friends. And if you have other ideas on the challenges that small businesses will face in 2019, kindly share in the comments section below.
Most importantly, please share your proposed solutions!