What’s a small business owner’s worst nightmare?

Selling your business is often a confidence game. You can have a game-changing idea, a brilliant business brain and can make yourself look as impressive as the big hitters when pitching for business. So what could possibly have you waking up in a cold sweat at 4am?

The road to success when the responsibility lies solely with you is fraught with risk and can be quite a scary place to face alone.

So, we’ve picked out some small business challenges and a few insights that will hopefully banish those nagging fears. So have a read and ask yourself, what are you afraid of? 

Small Business Challenge 1: Failing to stay afloat

Having a cash-flow crisis is high on the list of problems encountered by small business owners. Independent Growth Finance’s (IGF) Small Business Survey 2011 revealed that over one third of small businesses had cash-flow problems in the two years before the survey. Worse still, 43 per cent reported having to use their own personal assets as a guarantee for their business or to solve cash-flow issues.

These numbers are backed up by our 2014 DNA of an Entrepreneur Report, with more than a quarter of small business owners worried that they won’t have the financial resources to keep going, while 49% of respondents cited non-payment from customers as a major fear.

While certain sectors and regions seem to experience cash-flow problems more than others, it can be a problem that affects the future of their business — especially when they don’t have sufficient protection from their small business insurance. This means when the funds dry up and the banks don’t lend you’ve got to get creative.

Even if you do manage to get your hands on an overdraft or a bank loan, the interest rates can be crippling. One alternative method of freeing up cash when times are tight is invoice financing.

This is where a third party buys your unpaid invoices for a fee. They give you a percentage of the invoice amount up front, then collect the debt originally owed to you by your customer and give you back the remaining balance.

This method allows you to get hold of a percentage of the money you’re owed by your customers straight away to get you out of a tight spot. However, it’s worth considering that you could end up losing profit from orders or services that you provide. Also, depending on the way your invoice financier deals with your customers, this may cause reputational management issues.

Small Business Challenge 2: You’re not living in reality

Ambition is great, delusion is scary. A lack of real world thinking when it comes to business plans can be fatal. The bottom line? You’ve got to know how to plan.

A well thought out business plan can help you map out how your business will grow and develop over a set period of time, and with solid projections, banks can be more confident – and more generous – in their financial support. A good plan should include:

• the main business ideas and long term objectives
• progress benchmarks
• a breakdown of the finance you need, and essential outgoings such as small business insurance
• potential risks to your business
• what you need to operate
• a sales forecast and figures marking out profit and loss
• a consideration of your competitors
• your marketing objectives and strategy.

Convince a bank, your customers and your suppliers of your performance plan, and you’ll ensure you have the funds to keep your business running.

Small Business Challenge 3: All your eggs are in one basket

So you’re up and running and not doing too badly? Now’s the time to look at where your money’s coming from. Being too dependent on one client makes your business vulnerable, should the status quo suddenly change. The biggest fear listed by the small businesses survey in our 2014 DNA of an Entrepreneur report was the failure to attract new clients, with 34% worried this will impact their business.

That single client could run into financial difficulty themselves, refuse to pay for your service or be unable to for long periods of time or simply no longer have any need for your business. While you just have this client as your one source of income, you’ll be at risk of having your entire income wiped out in one go.

If your client disputes an aspect of your work – from the quality of the work to the size of the fee – and refuses to pay then you may at least be covered depending on your professional indemnity insurance. However, if they simply decide to go with a different business provider, there’s not much you can do about it.

Ask yourself, does the client have a consistent need for your product or service? If the answer’s no, then you’ll need to start winning new business.

Small Business Challenge 5: No one knows who you are

It’s hard to diversify a client base when nobody’s heard of your business. What’s more, they not only need to hear about it but they need to be persuaded, convinced and excited.

Marketing is one way to combat this. It doesn’t mean throwing thousands of pounds your company doesn’t have at a fancy advertising agency. In fact, as far back as 2011 US online form builder, Formstack, revealed that 83 per cent of buyers no longer trust advertising, putting their faith instead in user recommendations online. Getting recommendations means people are already aware and talking about your business, solving one of the most common problems faced by small businesses.

Small Business Challenge 6: Online threats

Another statistic from our 2014 DNA of an Entrepreneur Report shows fear of cyber crime is a growing problem encountered by small businesses, with 17% of respondents mentioning their worry over this compared to just 5% last year.

Similarly, the more businesses move online, the more data they’ll hold and, as Hiscox’s Matt Webb has previously mentioned on this blog, 60% of small businesses surveyed in a recent government report had suffered a data breach.

But while it’s hard to fully protect against this threat, there are steps you can take to mitigate the risk. For example, the government’s Cyber Essentials programme is designed to encourage small firms to get up to a basic level of cyber hygiene.

Cyber risk insurance is an increasingly important consideration for small and large businesses alike. Hiscox offer protection from e-risks as part of our small business insurance package, so there’s no reason to be inadequately prepared.

Small Business Challenge 7: Becoming a statistic

According to the House of Commons (external link), UK businesses are currently failing at the same percentage rate as they’re starting up. While in real figures, the number of businesses that make it is slightly higher than those that don’t, that has only been the case for the last three years.

It’s not all doom and gloom though. Since the year 2000, small and medium-sized businesses in the UK have actually increased by 41 per cent. However, as you might have guessed, there’s a catch.

Businesses without employees are to thank for the continued increase in the number of businesses overall since the year 2000. Even during the 2008/2009 recession they managed to secure an increase in numbers. Currently, 75.3 per cent of all private sector businesses don’t employ anyone besides the business owners and 62.6 per cent are sole proprietorships. Working for yourself can be scary, but also allows you to be more nimble.

There’s no doubt that the path to success for SMEs is full of scary obstacles, and although entrepreneurs can try to safeguard against common risks, there’s virtually no way of preparing for every problem that faces small businesses. But for every fear, there is a way to conquer it and while starting up by yourself can be terrifying, it’s also exhilarating, enjoyable and hugely rewarding, and it’s often the drive and passion that led to the creation of the business that will see you through those darker times.