Top 5 Challenges That Small and Medium Sized Enterprises Face

Estimated reading time: 5 mins

SMEs or small and medium-sized enterprises are defined as independent companies with fewer than 250 employees. Almost 98 percent of all businesses in the United States are small and medium-sized companies. This is on par with the rest of the world. SMEs account for 95 percent of all global businesses. SMEs play major roles in the development of emerging economies, contributing on average 40 percent of the national GDP in their respective countries.

Although their contributions to the world economy are evident, SMEs are much more vulnerable to factors that can lead to business failure, compared to established corporations. Only half of them will survive to their 5th year of business, and about 30 percent will celebrate their 10th anniversary. With the business landscape getting more complicated, fierce, and competitive, it is understandable how stressful it can be to own a business. To give you a heads up here are some challenges most SMEs face.

Financial Matters

Just as you look into funding in your personal life, so too must SMEs. Unlike big corporations, SMEs are having a hard time getting the trust of financial institutions, and therefore lack options for financing their needs. SMEs’ cash reserves can easily run short due to rising costs backed by limited finances. With limited finances, it can be difficult to create business growth. Without growth, there is no way a business can survive against competitors.

The complexity of financing can be simplified with the help of accounting and tax professionals. Not only does can this help you avoid tax problems in the future, but it can also help you form a sound business decision based on your financial standing.


You can’t operate your business alone, and that is why you need to hire reliable, happy employees. SMEs sometimes experience high staff turnover. This can be due to several factors like lack of growth opportunities, feeling unappreciated, and being overworked.

High staff turnover can cost you extra money and effort from hiring and training new employees repeatedly. To foster a good working environment, as well as keeping your employees happy and productive, you need to create perks that can lighten the atmosphere. You can set up employee appreciation events that can create a bond between you, your business, and the employees.

Client Retention

Customers are the blood of the business. If it weren’t for them, there would be no demand for your product and service. They are your main source of incoming cash flow and are the very reason why your business is running.

SMEs face challenges in creating repeat customers. If you only rely on attracting new customers but failed to keep and create customer retention, then you are setting your business up for failure. Failing to gather repeat customers is failing to create a sustainable profit.

In order to keep your clients coming back, you need to give them great customer experience. You can do this by engaging with your clients, listening to their feedback, and following up on any customer-centered programs.

It also helps if you have established some form of positive social media presence. This will ensure 24/7 attention to their needs and wants. It will also allow you to generate repeat business as well as attracting new clients to your company. By using social media platforms, you are creating an opportunity to do both at the same time. You can reach out to previous clients who have provided your business with their information and give them rewards or discounts for returning.

At the same time, you can advertise products or sales to potential new clients based on their social media likes and preferences. This can give your SME an advantage over larger companies who cannot take advantage of social media as smaller businesses can.

Social media provides SMEs with the tools to target the people who would use their services or buy their products directly. Instead of eating up their marketing budgets on more traditional means of advertising (TV, radio), smaller businesses can select the region they want to promote in and the types of people using the platforms. This will allow them to not only reach their target audiences but also allow their budgets to stretch further.

Rising Operational Cost

Any changes and developments in the international market can affect certain countries, and therefore directly impact SME operations. Rising fuel costs can easily drive almost all commodity prices to increase. Tariff wars can cause uncertainties to your production because it can swiftly change the prices of raw materials.

Operational costs do not just include the price of materials and shipping. It can also include labor costs. As the cost of living goes up, employees will require higher wages to keep up with those costs. If they do not receive those wages through your company, chances are they will need to find a position at another company. Noticed that was need, not necessarily want to. Your employees could be perfectly content with your company and the work they perform for you, but if they are not earning enough they may have to leave in order to support themselves and their families.


As the business founder, it’s important to step away from the stresses of your position. Being stressed out and burned out can cause you to be inefficient. You will need to find ways to relax. More importantly, you will need to find a way to take a day off. You need to find competent and qualified people to help run your SME. The sooner you find someone to take on some of the tasks you perform and cover for you, the sooner you can get ahead of exhaustion and prevent burnout.

Burnout will eventually leave you ineffectual as a leader. Your brain can be overwhelmed and unorganized. Your frustration and stress levels can also cloud your judgment. This is why it’s important to hire capable and trustworthy people so that you can pace yourself and stay motivated.

Use some of the same techniques that CEOs of large companies use to keep themselves functional. Some take a couple of hours out of their day to focus on them rather than work-related issues. They will read, exercise, meditate; anything they can do to revitalize themselves and stay in the game.

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