The following is a brief list of common challenges and problems that owners of a small business face on a daily basis along with some suggestions for helping to make sure they don’t stop your business. Feel free to add your thoughts to this list:
- One frequent problem is bankruptcy due to undercapitalization (often a result of poor planning rather than economic conditions). A common rule of thumb says that entrepreneurs should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. If the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, then he should have no less than $250,000 available.
- Another problem is poor management of gross margin (sales minus variable costs). To break even, the business must be able to reach a level of sales where the gross margin exceeds fixed costs. When they first start out, many small business owners underprice their products to a point where even at their maximum capacity, it would be impossible to break even. The good news is that cost controls or a price increase can often resolve this problem.