The Biggest Challenges SMEs Face and How to Overcome Them

Understand the action steps SMEs can take to overcome post-pandemic challenges.

Dear Small and Medium Business owners and managers, we see you, and we appreciate you. You are here to discover how to solve the challenges you are facing in your business but, there is something we must remind each other of.

All world nations depend on SMEs for many things – products crafted with love and passion, job creation, and economic development are some of the most important ones. The World Bank reports that SMEs represent 90% of businesses and more than 50% of employment worldwide.

So, whether you realize it or not, the good you are doing is far beyond your business. And for that, you deserve all the love that you get.

While we have established your excellent work, the next thing we should discuss before going further is the thing that affects all humans – change! Everybody resists change at different levels. But you can’t join them.

How we work and do business has changed, no thanks to the pandemic, and you know SMEs suffered the most. Heck, maybe your business still hasn’t fully recovered. You know change is a constant thing, so it is only mandatory that you accept it as your business grows. And the need for this, we will discuss further down in this piece.

Next, it will be a pretense if we assume that there aren’t challenges in business, especially unexpected ones. But, we can prepare for them and limit their effects. So, let’s look into the challenges SMEs face and how to solve them.

Does that make sense to you? It should.

SMEs Challenges and Their Solutions

1. Rising Costs & Reduced Revenue

Rising costs and reduced revenue are among the biggest challenges SMEs face. One million businesses agree and for different reasons. Some of these include inflation, cost of raw materials, insurance costs, low demand for products and services, and other general business costs.

As many industries recover from the effect of the pandemic, the costs of doing business and maintaining profitability are major concerns. As such, businesses are left to respond.

And many have taken to increasing prices of products and services or cutting staff. However, is that the right way to combat this challenge?

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See how your business can benefit from an ERP solution and increase revenue.

  • Solution

Because the reason for this challenge is more than one, it is difficult to provide a single solution. But one thing all SMEs must do is shop around. If the cost of raw materials from your supplier is too high and leaves you to increase your products’ price, what if you look elsewhere for the materials? Shop around, compare prices without forgoing quality, and regularly switch suppliers.

To get the most out of this, you should give a procurement management system like Odoo Purchase a try.

Its automated tendering feature lets you tender information in one place so you can compare prices and choose the vendor with the best offer. And with functions like Blanket Order, you can schedule multiple orders with a previously agreed price.

Meanwhile, before agreeing with suppliers, you should also be careful not to get caught in contract renewal traps. Suppliers are businesses too, and they intend to keep customers like you, so they often make contracts that ensure you continue to buy from them. However, be sure the contract won’t affect your business negatively in the long run.

You should also ensure that you are not spending on unnecessary expenses. Sometimes, before releasing funds for an expense, you should pause to think if that purchase is necessary. If it is, you should also ask if there is a better way that won’t cost as much.

2. Skill & Talent Shortages

Another area where SMEs suffer is losing skilled workforce to competitors, especially the bigger ones in the same industries. Now, larger firms can promise personal growth and career stability, but there are other reasons why talents leave SMEs.

For example, after the Brexit vote in the UK, EU citizens, who provide extra help in the workforce, left the country with uncertainties over their future status and rights. The Great Resignation has also left several businesses looking for talent.

Let’s find out what SMEs suffering from skills and talent shortages should do.

  • Solution

Whether your employees are leaving now or not, the first thing to do is to care. Despite what you might know about traditional management, the events of recent months have shown that employees are likely to stay when they know their employers care about their general wellbeing.

The truth is that, sometimes, there is little you can do when someone feels they want to leave. But you will rarely see a third of your workforce leave at once if you care about them.

So, how do you show care? Invest in training, education, employee engagement, and technologies that optimize processes and make your people’s lives easier.

We will discuss technology better later in this piece, but you will see that your first duty here is to be human and care for your people if you have employees leaving.

So, be interested in your employees’ welfare and show it. Unsurprisingly, this will both help you attract new employees and keep them. Care for and appreciate your employees!

3. Managing Expansion

Can we agree that expansion problems are good problems? When a business expands or feels it’s time to expand, it is a sign of growth. However, several challenges come with opening up in a new location.

You will face demand for a growing workforce, more diverse customer needs, inventory management, dealing with new competitors, keeping the supply chain running, sustaining your culture, multi-currencies, and reporting or accounting standards. So, how do you manage all that?

  • Solution

As we have seen, different problems can arise from business expansion, so there are slightly different answers to them.

First, you should employ new competent employees when you expand. You must also invest in an HR management system and automated payroll software to manage them effectively.

Second, to deal with the more diverse customer needs, you have to, first of all, communicate more with them. Establish strong customer relationships to understand their pain points and how your product or service can best help them. You will also need to collect and analyze as much customer data as possible.

As your business grows, you also have to maintain productivity and efficiency. In short, you have to deal with business intelligence requirements. Thankfully, all you need are the right policies, practices, and technologies.

Next, you need inventory management software that does its job well. Earlier, we discussed that you should be wary of suppliers that try to hold you down even when their prices aren’t favorable. What we haven’t mentioned is that having different suppliers you can call is crucial to keeping your supply chain running.

Another problem you will have to find a lasting solution to is the new competitors you will encounter as you enter a new market. But the best advice is to focus on your business and your existing customers. It is not uncommon for business owners to lose sight of themselves in a bid to see what their competitors are doing.

While you should be aware of what your competitors are doing, you should focus more on communicating your unique mechanism to your prospects and keeping your customers happy.

Now, you will notice that the solution we have discussed under expansion included investing in a few technologies. But, the question you should ask next is, isn’t that contrary to our advice earlier of cutting expenses?

Well, it isn’t contrary when you find out that you can find all the solutions in a single system called Enterprise Resource Planning (ERP). Suppose you are unfamiliar with the term; it is a business process management software that helps manage all the business processes on a single platform while driving sustainability.

Whether you are expanding or not, you will need to keep inventory in order and ensure your finances, and other activities, such as supply chain, reporting, manufacturing, e-commerce, and human resources, are taken care of.

A typical ERP will help you with all these without issues. Some examples of popular ERPs in the market include SAP, Oracle NetSuite, Odoo, Microsoft Dynamics365, and Sage 300.

4. Attracting New Customers

Statista reported that the biggest challenge faced by SMEs in the UK between 2016 and 2018 is attracting new customers. But isn’t that true today worldwide? It is a problem all businesses, both small and large, face.

Some might agree that it is easier for larger companies to attract new customers due to their strong branding, and they won’t be wrong. But what should small and medium enterprises do?

  • Solution

What informed your decision with the last purchase you made – either for personal or business use? Was it the quality, the people behind it, attractive packaging, or their messaging which seemed to understand your feeling?

The point here is, attracting new customers doesn’t happen overnight and with a single solution. However, the first thing is ensuring you offer quality products and services. No matter what you say to prospects, what will make them buy and return later will be that your offering is quality.

Next, your messaging has to be top-notch. What is your unique mechanism? Let it show forth in your marketing in the language of the market.

Before we leave this point, mentioning the importance of cultivating good people skills makes perfect sense. To attract new customers, you need to be able to relate to a broad mix of customers.

Other ways to attract new customers will be to know your customers, incentivize existing customers, explore different sales channels and different pricing models, network, and try paid advertising.

5. Coping with Market Competition

Competitors help keep you on your toes. And while we have advised that you shouldn’t focus much on your competitors, you have to take note of your competitors if you intend to remain in the market. 

You should know what new marketing strategies they are executing and what services or products they are pushing to the market. This is not to replicate them; rather, understand what your prospects are being exposed to.

The sad truth you can find out is that you cannot compete as much as you would love to despite your best effort. When in that situation, what should you do?

See how Odoo can benefit your SME.

  • Solution

Will it make sense if the first solution we provide to cope with market completion is not to focus on your competitors? Hopefully, it won’t sound strange at this stage.

However, an excellent way to deal with the competition will be to market your products or services to other markets. This doesn’t mean switching industries but introducing new and relevant products.

As a practical example, you will notice that when the lockdown took effect all over the world in 2020, telehealth became a thing. Healthcare businesses started helping people talk to doctors online and send medications to their homes. 

While that market got saturated, a wise way to launch a new product was to introduce at-home COVID-19 tests. At that point, the business was not only helping people get medical attention in their homes, but they were also getting tested without moving an inch.

So, here is the question for you? How can you diversify and welcome new audiences without leaving your industry? Said better, how can you embrace change and get ahead of the competition – you remember our earlier discussion about change, right?

6. Securing & Managing Funds

Securing and managing funds is another challenge for small and medium enterprises today. But gone are those days when you are limited to traditional banks for funding. Nowadays, you have options; angel investing, working capital loans, crowdfunding, venture capital, and government schemes.

Therefore, the biggest challenges in this area are preparing to ensure you get the funds you need and then managing the funds to ensure the purpose of the funding is met.

Anyway, since the options are not limited, what must you do to get funding and not waste it when it comes? Let’s get to it.

  • Solution

The problem is that you are not getting the funds you need to either kick-start your business or meet new demands.

There are a few reasons why that may be so, but there are five of those you should look out for: young business, cash flow limitations, lack of documents and essential information, etc.

Once we understand the problems, what are the next steps?

First, build your foundation correctly. This includes making sure all documents are correct and up-to-date. If they aren’t, you should correct them or alert the right organization to do that.

Building your foundation correctly also includes getting your finances in order. If any person or company will invest in your business, they must see that it is not in disarray. This includes, most importantly, your finances.

Next, why do you need funding, and how much do you need? You must answer this crucial question before you approach any firm for funding. You should understand that all business funding is not loans. You must find out what you need at different times in your business.

Finally, ask questions. Before you apply for loans or approach a venture capitalist, ask relevant questions from experts. This might sound like common sense, but you will be surprised by many issues that could have been avoided if business owners had asked questions before taking funds.

After you have secured funding, what is the next step? Manage the funds! To do this, you need to manage cash flow effectively to minimize unnecessary expenses, overspending or misuse of spending funds.

Additionally, your business may consider cutting production or supply chain operational costs, e.g. by tracking inventory, recording/reporting purchases, and referencing more suitable suppliers in the market.

To do all of these effectively, an accounting system like the Odoo Accounting module can be life-saving. Not only does it allow you to monitor cashflows and create reports, but it also allows for fast vendor bill recording.


Ensure you stay true to your purpose for securing the fund while monitoring payments, cash flow, and profits so that you don’t run the business into financial turmoil.

And there you have it; solutions to challenges facing SMEs! But before ending this piece and trusting you to start taking the right actions, let’s look into the role of technology in solving those challenges.

The Role of Technology in The Development of SMEs

You will notice a common thread if you have checked various articles online discussing the challenges of SMEs. Among the challenges shared are topics around technology like “digital adoption,” “automating business processes,” “embracing technology,” or “poor use of technology.”

We intentionally left out that challenge, and here is our reason. There is no doubt that technology has revolutionized the business world. But technology is only a tool to help you do your work. It will never replace having a well-defined process between and within departments of your business.

So, while we use technology, it will never replace treating your clients and employees like yourself or being truthful with the funds you got from a venture capitalist.

Another reason we didn’t include the technology challenge is that we advocate for only using the technology you need. There is no need to install a system with features you won’t use, as you will find in SAP, Oracle, and other bigger ERP software.

For example, if you are a small team and don’t need automated payroll software, why should you have it and incur the unnecessary cost? That is our stand, and if that makes sense to you, we think you will like Odoo - a modular ERP system.

As discussed earlier, an ERP system is software that includes all that you need to improve your business processes from a single platform.

What we didn’t show was that with Odoo, you only have to install the modules you need, and when a module is no longer serving you, all you have to do is downgrade.

We are a third-time Best Odoo Partner in the APAC region and have team members in four continents helping our clients implement IT systems the right way and providing one-of-a-kind business consultations.

Don’t hesitate to reach out to us if you have questions about using Odoo to solve your business challenges.

In the end

So many factors affect businesses, and sometimes all that it takes to go extinct is an issue that could have been solved if they had been tackled earlier.

So, as you go in the year, you must look back and consider the challenges you had in the past year. If you solved them, how did you go about it, and if you face a similar situation in the future, how will you solve it?

If you are still battling the challenge, maybe one of the solutions we have provided in this piece will help. Whatever you do, don’t forget that sometimes all you have to do is ask for help from the right quarters. 

Cheers to your success.

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