08 Jun What are the Biggest Challenges that SMEs are Facing Today?
In today’s world, things are becoming tough for any business to scale up exponentially like it used to be in the last few decades. The problems and challenges are greater in number for small and medium-sized enterprises. Some of these challenges are rather new and that is exactly why SMEs are suffering more as they still no have a concrete solution to overcome those challenges.
Cash Flow – Cash flow is the money that a company possesses after all the capital expenditures are done. Lack of cash flow is hurting all SMEs and it is one of the root causes of several problems they are facing at present. SMEs use their cash flow to pay off their debt, pay dividends to their shareholders, buy back stock and most importantly, expand their business all of which are hindered by its absence.
Cost Of Borrowing – Due to lack of liquidity, SMEs have to take loans from time to time to execute their big projects and pay different expenses. Due with the rapid expansion of the economy in most of the countries around the world, the interest rates of borrowing are also increasing significantly. SMEs have to pay more interest and other financial fees than it used to be in the past. It is affecting overall business and profitability. The rise of interest rate can also be attributed to the rise in inflation.
Scalability – Expansion of business is mandatory for any company to progress consistently and increase their revenue. Lack of expansion can make the business stagnant and with the rise in interest rate and other expenses, the company is sure to undergo a financial crisis. The lack of scalability is a direct result of lack of cash flow. Furthermore, new entrepreneurs are easily satisfied by the growth of their company without understanding the risk of not expanding in due time.
Lack of scalability has killed many SMEs due to lack of project supply and the unwillingness of clients to award big projects and moving on to bigger enterprises. The absence of establishment in cities and countries where the projects inflow could be really higher is one of the biggest challenges that SMEs are facing that need to be solved for survival.
Accessing Finance – Access of finance helps an enterprise to avail various financial services like insurance, risk management services, availing credit whenever needed, paying the dues quickly and likewise. It is a proven fact that easy access to finance helps SMEs to grow rapidly, protect themselves from future unforeseen risks and most importantly, the debt does not stay stagnant for long and there is no dependency on personal wealth to invest back in the company. Most of the SMEs are having limited access to finance and they are in a state of under-banked.
Competition – In today’s scenario, competition is at its peak and in future, it is only going to get high. There are so many small and medium-sized enterprises coming up every year. With digital marketing, they are taking a good grip on the market and replacing the old ones comfortably. Even though their sustainability is questionable yet, constant competition is harming the existing established SMEs to growth at the normal pace.
Unless SMEs can overcome these challenges in the near future, their long-term future will be questionable.
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