If I am not wrong, most of the people in the world are involved in doing small business because it has some sweet benefits that neither they can find in doing jobs nor in a big business. Anyway, the disadvantages of small business are not few. Knowing the disadvantages helps to lead your business to profit.
According to the U.S. Small Business Administration, “The business must have no more than 500 employees for most manufacturing and mining industries, and no more than $7 million in average annual receipts for most non-manufacturing industries.”
Of course, the size of small business may vary from industry to industry.
Perhaps, small business is the most popular form of occupation in the world as it has lots of advantages. But, this is the thought of outside. You will have to face lots of disadvantages of small business when you will start.
Disadvantages of Small Business
To run a small business is always challenging. It is completely different from the larger business, in terms of everything. For its tiny size, its owner has to go through lots of troubles, like collecting finance, managing company, etc.
However, I found out 7 disadvantages of small business, that I will explain below:
#1: Less Recognition
Like larger concerns, small business doesn’t have much name recognition. Usually, bigger business can gain this exposure with the advantage of promotional activities, and locations that are really difficult to get for a small one. When a small business starts its action in the market, it has to face the challenge thrown by the larger businesses; it has to compete them. Thus, the small business owner feels a big difficulty to attract the customers. Whereas, a larger business gets the advantage of settled reputation, a smaller one has to struggle a lot to establish his reputation, and develop his image in the market.
#2: Small Budget
One of the biggest disadvantages of small business is to manage the budget to set up an initiation. As the size does matter, small business owners cannot be able to obtain much financing. So, he or she has to always look for sources of budget. Where the larger business can have market share, small business cannot have these advantages. Sometimes, it becomes very difficult for small business to get even a loan from the banks or pay higher interest compared. Small business owners cannot even manage to find investors, as people are always interested to invest in larger ones, rather than small business. All these make it tough to raise funds for the small business, and thus cause lots of difficulties. Nowadays, it takes a huge sum of money to run promotional activities. For budgeting problem, a small business cannot run enough promotional activities, and it will get far harder to establish them in the market. Small budget causes trouble not only in the promotion, but also it makes difficulty to hire skilled and qualified employees, and with that they cannot satisfy their customers.
#3: Bargaining Power
Bargaining power is another one of the major disadvantages of small business. It restricts a small business to obtain a low cost basis of resale products. Generally, giant companies can bargain volume discounts and bulk pricing that lower their cost per unit. With that, they can maximize their profit, and increase their output. But, a small size store is unable to have the same purchasing power as a business with a bunch of sites and economies of scale.
As the bargaining power is limited, and the cost is comparatively higher, small businesses have to charge higher prices, but with the higher prices, they can’t even battle on price against bigger competitors. It is impossible for them to make enough revenue with a low price strategy and thus cannot create variation in products or services. This increases the difficulties for a small business to promote its products and services.
#5: Attracting Talent
A larger business influences to have bigger resources to offer top talents, and those resources often help to hire skilled people. In order to expand a small business, it requires qualified employees in key positions. A bigger business has the ability to offer more advancement and recognition that can help in the execution of work duties and potentially more pay and benefits than a small business can do. A small business would need to use the potentiality for growth as a way to attract top talent, and that may not be enough to get the people your company needs to become successful.
In the business world, downturn is pretty much common. And it is another one of the important disadvantages of small business. Usually a larger company may have enough reserve cash in store to survive the downturn. It doesn’t have to struggle much as the reputation of the larger business may allow it to negotiate terms with vendors that can help to stretch revenue until sales pick up again. But, the case of small business is different. As it runs on a limited finance, even a small downturn can shake the whole business. Sometimes, downturn compels to shut down the small business.
#6: Limited Employee Benefits
We all know that, increasing the output mostly depends on the employees. Inspired and motivated employees can change the scale of output. To inspire and motivate them, a company needs to offer some advantages and advancements, which is a bit tough to offer for a small business. Small size businesses are unable to afford offering benefits to the employee, such as health insurance, life insurance and so on. Often it gets harder to pay even bonuses and discounts. Hence, the employees don’t feel much motivated, and not willing to put much effort in production. Lack of advantages makes it tougher to attract and retain skilled workers who may find most comprehensive benefit packages with larger companies.
#7: Surviving During Difficulties
Business is all about taking risks. Sometimes, it has to pass difficult times due to several economic crises, such as recession, currency inflammation, etc. During this period, the smaller companies have to face a massive challenge to survive. Bigger business may have a greater financial capability and access to more resources that can help them to survive the rainy days. For smaller companies, a loss of even one major customer in a struggling can deliver a fatal blow, as they may have no way to replace the lost revenue.
Hardly any business is risk free. So, as an owner of a small business, you need to take risks. And, the joyous thing is that these disadvantages of small business cannot overwhelm its sweet merits. Disadvantages exist in all terms of businesses, and always will be. You will need to learn how to overcome them.
Read: How I write my blog post