Main Street businesses are the backbone of the U.S. economy. In fact, small and medium enterprises employ almost 60 million Americans. Yet for local shop owners and entrepreneurs, who already juggle multiple roles, there is no shortage of small business challenges to overcome. Even more concerning is the fact that the new year seems unlikely to relieve pressing issues like uncertain markets, tight budgets, changes in consumer tech behavior, and more. At least, not immediately.
While the outlook may seem daunting for those starting or operating small businesses, being aware of the likely challenges and taking proactive steps to address them will help. As the saying goes, “Forewarned is forearmed.”
Recognizing larger market forces, monitoring finances vigilantly, leveraging technology strategically, and preventing burnout can all enable small business owners to survive and potentially thrive despite an uncertain landscape. With savvy planning and execution, SMBs can turn small business challenges into big opportunities for growth and profit in 2024.
Recognize Larger Economic Forces and their Effects
It can be tempting for small business owners to operate with the mindset that larger economic trends don’t impact them much. However, this couldn’t be further from the truth. As we saw with the pandemic, massive global events can significantly affect businesses of all sizes.
In 2024, broader economic conditions could have notable implications for small business owners:
Small Business Challenges from the Economic Downturn
Experts warn about the U.S. falling into a recession in 2024. According to studies of 10-year and 3-month U.S. treasury rates, there is a 51.84% probability of a significant economic decline by November 2024. This downturn is a lagging effect of the pandemic and supply chain crises.
Consumer spending drops substantially during recessions. With less disposable income, customers reduce non-essential purchases, and these measures impact many small- to medium-sized enterprises. Owners may need to prepare for revenue declines in the next couple of years.
How Interest Rate Fluctuations Affect Small Businesses
The Federal Reserve’s inflation forecast is also something to watch for. The Associated Press reports that the U.S. inflation rate is approaching the Fed’s 2% target for 2024, but it’s “getting there slowly.” Lower inflation also means cooling prices for items found in most U.S. consumer budgets, like gasoline. According to the American Automobile Association, regular unleaded gas costs $3.08 on average in December 2023. This is a 61.4% decrease from the highest recorded average price in recent history, which is $5.016.
But Isn’t This a Good Thing?
You’d think that deflation or cooling interest rates wouldn’t make it to a list of small business challenges. With lower interest and prices, consumers have more buying power. This scenario leads to more revenue, right? Strictly speaking, this is true. The Fed curbs interest rates at the start of a recession to encourage lending and borrowing.
In economic terms, when interest rates decrease, banks tend to lower the amount of interest they pay to savers. This is particularly noticeable in deposit accounts like savings accounts, CD (certificate of deposit) accounts, and money market accounts during a recession.
The disadvantage here is that if you’re looking to grow your money quickly, the reduced interest rates mean you won’t see as much growth in your savings. It’s like having a savings plan where the interest you earn is a crucial part of the growth, and during tough economic times, that growth potential becomes less favorable. If you were expecting to make some extra money to reinvest in your business, you won’t be getting as much as you might have during better economic times.
Lower interest rates mean that the financial rewards for saving or investing your business funds are reduced. This can make it harder for businesses to accumulate the capital they need to expand, hire more employees, or invest in new opportunities. In short, the unfavorable scenario is that the lower interest rates limit the financial benefits business owners can gain from their money.
Small Business Challenges Due to Market Volatility
According to Reuters, investment banks and asset managers are making widely divergent predictions for the stock market and currency movements in 2024. This lack of consensus stands in stark contrast to the predictions made a year ago when most anticipated a U.S. recession along with swift rate cuts, which did not materialize. The current state of the world’s largest economy, as evidenced by a 5.2% expansion in the third quarter of the year, adds to the uncertainty.
The divisions among forecasters have resulted in a scattergram of projections for the U.S. interest rate trajectory and the performance of global assets influenced by the actions of the Federal Reserve. Despite a recent rally in stocks and bonds based on a short-term consensus about a downward trajectory in inflation and interest rates, market participants are preparing for a potentially turbulent start to the new year.
Bumpy Start of the Year for Businesses
The mixed opinions on the performance of the U.S. dollar and global currency dynamics presents a notable challenge for small and medium-sized enterprises (SMEs). When the value of the dollar changes, it makes things tough for businesses engaged in international trade. For one, it becomes expensive to import goods from other countries. Conversely, fluctuations like this might lead export partners to conclude that the costs of dealing with U.S. businesses is prohibitive. This up-and-down movement in exchange rates can mess with how much money SMEs make on these international deals, affecting overall profits.
Overall, financial markets are expected to be shaky at the beginning of the new year. For SMEs that usually operate in stable market conditions, this turbulence can make it tough to handle things like managing inventory, figuring out the right prices for products, and overall business planning.
Addressing Small Business Challenges
Now that we’ve tackled some of the big challenges small businesses face in the coming year, let’s dig into strategies to help them grow and stay strong.
Closely Monitor Product/Service Pricing
Even with expectations of a slowdown in interest rates and inflation, it’s wise for business owners to keep an eye on their pricing competitiveness. While the overall economic landscape may be cooling, businesses operate in diverse sectors, each with its unique challenges. By staying on top of pricing strategies, you’re not just responding to economic indicators but also tuning into the specific dynamics of your industry and potential local nuances.
Customer preferences, industry trends, and unexpected shifts can all play a role in your pricing strategy, and knowing how much your industry peers are charging ensures you’re well-prepared for whatever small business challenges the market throws your way. It’s not just about numbers; it’s about strategically navigating the market landscape, understanding your consumers, and securing a strong position amid the inevitable twists and turns of business.
Keep Labor and Production Costs Low
Staffing, manufacturing, inventory and other operating expenses typically comprise a large share of total costs for small businesses. Managing these costs will be crucial yet challenging, with wages rising due to high inflation and a tight labor market.
Diversify Your Approach to Staffing
In industries like restaurants, retail, and salons, where personal interaction matters, exploring alternative staffing solutions is a must. Sure, giving the option for self-checkout, using automated attendants, bringing in self-order kiosks, and deploying smart chatbots for everyday inquiries can cut down on wage expenses.
But these technologies can often take away the human element in your business. Small business challenges notwithstanding, you need to find the sweet spot for staffing. While tech is cool, there’s something special about a human touch that keeps customers coming back.
One way you could reduce operating costs is by leveraging outsourced staff. If you’re a restaurant owner, for instance, and rely on servers to augment guests’ experience, you might want to delegate phone receptionist duties to a Wing Assistant. That way, you keep the most crucial business functions in-house while saving on the cost of fulfilling non-core tasks.
Optimize Inventory Management
SMEs preparing for an impending recession must be strategic about managing inventory, employing a multifaceted approach. First on the agenda is forecasting and data analysis. Business owners want to make sure they have just the right amount of products in stock. In a recession, people might not spend as much money. The smart entrepreneur considers how their regular consumers might adjust their spending and make plans to handle it.
In a downturn, supply chain diversification also matters. If something goes wrong with one supplier, businesses should have others to rely on. Technology integration plays a pivotal role here. Automated systems provides real-time visibility and control of data on these processes. Using technology also reduces errors and gives access to actionable insights.
Look Outward to Address Small Business Challenges
Establishing collaborative partnerships with suppliers and engaging in negotiations with flexible terms are pivotal components of resilience in business operations. Cultivating robust relationships with key suppliers promotes transparency and cooperation, facilitating mutually beneficial adjustments during economic downturns. The implementation of lean inventory practices is essential for minimizing excess stock and carrying costs, ensuring a streamlined and efficient use of capital resources.
Additionally, investing in employee training, fostering cross-functional collaboration, and maintaining a commitment to continuous improvement contribute significantly to enhanced operational efficiency and adaptability. By embracing these strategic approaches, seasoned business owners can not only optimize inventory management but also construct a resilient foundation, fostering adaptability and competitiveness in the face of economic challenges.
Automate Production Where Possible
Small manufacturers can use computer-controlled equipment, 3D printing, and robotics to optimize production with less manual labor. Automating repetitive tasks improves speed and accuracy while reducing variability. This increases productivity and yield rates with existing infrastructure and staffing.
Leverage the Gig Economy Strategically
Business owners should also tap into the gig economy – hiring independent contractors for short-term or specialized needs instead of full-time employees. This provides more flexibility in ramping up or downsizing staffing based on actual demand. On-demand talent helps manage spikes or lulls cost-effectively.
The key is leveraging technology strategically across business operations to control labor and production costs. This sustains profit margins while keeping the business competitive on pricing for customers. Partnering with specialist providers like Wing helps small businesses access advanced solutions suited for their industry and scale.
Prioritize Creating a Strong Digital Footprint
Unlike large enterprises, small businesses often rely more heavily on local communities for their customer base. Creating a strong digital footprint and online presence is essential for reaching and engaging these potential local customers.
An optimized website, positive online reviews, and active social media pages help establish small business owners as experts in their industry. This builds credibility and trust among prospective leads. Well-designed, mobile-responsive websites with strong content improve discoverability and conversions. Encouraging customer reviews and showcasing testimonials signals quality. Engaging followers through social media and email nurtures relationships and referrals.
Additionally, small businesses must appear prominently in local searches to be visible to nearby customers looking for specific products or services. Dominating the first page of Google My Business listings, Apple Maps results, etc., helps drive customer walk-ins and conversions. Tactics like promoting the business address, using locally relevant keywords, and enabling customer reviews on listings enhance local SEO.
Hyper-personalization refers to providing individually tailored messaging and experiences matched to each customer’s unique preferences and context. For small businesses, mastering 1:1 personalization at scale can be a game-changing advantage over larger competitors. Business owners who interact directly with regular customers and prospects have valuable insights into their needs and pain points. Identifying these allows for customized solutions, promotions, and engagement for each individual. This drives higher satisfaction, loyalty, and conversions.
Local Search Optimization
Local search engine optimization (SEO) refers to optimizing a website and online listings to rank higher in user searches in specific geographic areas. This is extremely valuable for small businesses that serve local customers. Tactics like prominently displaying the business address, using relevant keywords, and enabling customer reviews help drive more local traffic. Additionally, maintaining complete and updated listings on Google My Business, Apple Maps, Facebook, and other discovery platforms is vital to be visible to nearby searchers.
Take a Proactive Stance in Fighting Burnout
Running a small business is demanding, often requiring long hours and wearing multiple hats. Business owners and solopreneurs are especially susceptible to burnout stemming from mounting responsibilities and inadequate support systems. However, ignoring the symptoms can be detrimental beyond impacting mental health. Researchers have found burnout to be a key factor behind small business failures.
The manifestations of burnout may include:
- Chronic exhaustion despite adequate rest
- Cynicism, irritability, and negativity
- Reduced productivity and effectiveness
- Feeling disillusioned about the business
- Headaches, insomnia, weakness, and other physical symptoms
Without intervention, burnout worsens over time, leading founders to shut down the business. Employees suffering from burnout are also more likely to quit their jobs. This results in declining service quality or revenues, putting the business at risk.
Being proactive about self-care while also building resilience within teams is important. Owners should start by identifying early red flags in themselves and company culture. Next, specific steps can help tackle and prevent burnout:
- Set reasonable expectations on workload and availability for themselves and employees.
- Build capacities and processes to delegate tasks to add flexibility.
- Encourage open communication about stress levels without stigma.
- Foster communities for peer support and mentoring, which provide emotional coping outlets.
- Promote healthy habits regarding diet, exercise, and sleep discipline through incentive programs.
Hiring specialized virtual assistants for administrative tasks or strategic advisors for occasional expert guidance are other options for overburdened founders. Outsourcing to contractors as needed gives breathing room.
The key is acknowledging that burnout happens, even with passion projects – but must be actively managed for individual and company wellbeing. A few preventive actions go a long way in sustaining performance.
Weather Small Business Challenges by Having a Plan
The economic and business landscape for 2024 will likely present an array of small business challenges for entrepreneurs and startups. However, these hurdles can be overcome with savvy planning. Proactively monitoring external trends enables course-correcting business strategy as conditions evolve.
In essence, building resilience to turbulence should be the priority for small businesses entering 2024. Having contingency plans for different scenarios, along with scalable resources and supports in place, enables nimbly navigating changing conditions. Remaining lean, nimble, and community-connected helps SMBs continue serving customers despite uncertainty.
The goal is not just short-term survival but longer-term prosperity. With eyes open to potential pitfalls and a proactive mindset, small businesses can tackle 2024 head-on and thrive locally despite global volatility.
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Aya is Wing Assistant’s blog manager. When she’s not wrangling content briefs, editing article drafts and handling on-page SEO, she is crafting messages for Wing’s other communication materials. Aya writes about SaaS startups, marketing for startups, search engine optimization, and pop culture.