Small scale industries are industries which produce goods and provide services on small scale with the help of machinery, hired labour and power. Small scale businesses face a lot of problems because of their small scale industry. They have limited capital for expansion and growth. They are not able to take advantage of economies of large scale production and this leads to lack of motivation, as they cannot take advantage of government schemes and incentives. This can result in close down of their business. Here are the 6 biggest reasons problems faced by small businesses.
1. Shortage of Funds
Small businesses face a lot of issues when it comes to fundraising. It is one of the major problems. Because of lack of credit worthiness, many of these businesses fail to raise funds from the capital market. Banks also hesitate to lend money to these industries because many of these units fail to provide adequate collateral security or guarantees.
Shortage of funds can liquidate the small business even before starting properly. There are some banks which provide loans to these types of enterprises after nationalization. Still the condition is worsening because of the sudden outbreak of covid-19 which led to lockdown and downfall in the economy. Entrepreneurs are forced to ask for money from money lenders at unreasonably high rate of interest and this upsets all their calculations of their business
Check out this blog on how to overcome shortage of funds.
2. Raw materials
Getting good quality raw material is one of the biggest problems faced by these types of small industries. They have to either sacrifice on the quality of their product or have to pay a high price to get good quality raw materials. Bargaining power is relatively low compared to bigger enterprises because of the small quantity of purchases made by them for the raw material.
Small scale businesses normally have local sources for meeting requirements of raw materials on regular intervals. These enterprises have to face a lot of problems like availability of raw material is not adequate, quality is not up to the mark and even supply of raw material is irregular. Whereas, large scale businesses get it easily and at much cheaper price as they buy raw materials in bulk. Small scale enterprises are thus forced to buy the same raw material from the local market at very high prices. It will lead to increase in the cost of production which makes their functioning difficult.
3. Managerial skills
A small business is founded and managed by a single individual. Hence, that person may not possess all the managerial skills needed to run a business. Due to shortage of funds, they cannot afford to employ professional managers or employees. This can lead to little chaos in the functioning of the business. Delays, mistakes, wrong decision making, etc can lead the company to downfall. This can also qualify as unprofessional behaviour by the client, which is not good for the reputation of the company in the market. All these aspects in large scale companies are fulfilled easily due to different expertise teams.
Due to shortage of funds, these types of industries cannot afford high salaries to the employees. Which can result in low productivity per employee and high rate of labour turnover simultaneously. Therefore, recruiting talented and skilled employees is a major problem faced by these units. It is difficult for small businesses to get a good amount of labour in their company. More labour demands more investment in business plus profit division.
In many small scale businesses, marketing is a weak area for them. The reason for the particular circumstance is that they do not have popularity and goodwill in the market at start. Direct marketing is not that much possible for these units since they lack the necessary infrastructure and investment. Hence, they have to depend on middlemen who sometimes take advantage of them by bargaining the price of the product produced by these companies and delaying the payments.
Many small businesses are becoming sick because of various internal and external problems faced by them. Lack of creativity, talent and skilled labour, managerial and marketing skills are the various internal problems. Meanwhile delayed payments, inadequate funds, lack of demand for their products in the market, etc. are various external problems faced by these small businesses.
How can you overcome these problems as a small business?
- Keep a tab on your expenses. It will help you avoid any over capitalisation or under capitalisation. It will also help you to keep track of your funding and loans.
- Work with limited staff. Hire few people but, they should have proper skills. This will let you have proper functioning in all different areas of your company inexpensively.
- Make use of technology. Traditional methods are good, but it can cost you more labour and a lot of funding. So make good use of the internet and technology.
- Instead of doing traditional marketing, do social media marketing. It has wider reach and you can keep track of your customers by insights and reviews on it. You can also collaborate with new businesses or brands and promote your product.
- Make sure that your working capital is greater than non- working capital. This will help you keep your business alive.
It is usually the level of personal engagement and attention to detail that makes a business successful. Many small business owners get caught up into these problems which lead to liquidation of the company. There is a middle ground between shady work and unhealthy obsession with quality of your product; it is the responsibility and decision of the owner how to face or get away with these problems that affect the growth of its company.
Reference link: https://statusbrew.com/insights/small-business-problems/
Blogs related to this topic, “10 Secrets To Make Your Small Business Grow Faster” and “Top 10 Ideas for Micro Business In India“.