The critical problems facing company owners today
The problems facing SME owners seem universal, no matter where they live or indeed which sector they operate in, namely:
Poor operating cash flow
The present environment is, at best, squeezing cash-flow and at worst, creating significant fear for owners as they battle to survive. Most owners would agree, there is limited ability to raise capital when their backs are against the wall. Often-times the only way to survive a crisis is to make their talented staff unemployed and batten down the hatches, which is not ideal.
A lot of businesses have debilitating levels of debt, with lenders not only taking a charge over company assets but also insisting on personal guarantees. All this can affect an entrepreneur’s relationships at home and work, as well as negatively affecting their health.
Cost to sell
The cost to sell a small company today relative to average SME earnings is exorbitant. By some estimates, nearly 15-20% of the consideration in a sale will go towards paying tax (typically at both company level and shareholder level), accountants, attorneys, financial advisors, etc., as well as the hidden costs of endless meetings, emails, and phone calls.
The size trap
SMEs typically do not have sufficient balance sheet strength, track record or business development budgets to procure larger contracts and find it difficult to grow beyond a certain point, naturally hitting their “glass ceiling”.
Given the ups and downs of cash flow, owners find it very hard to sustain a regular salary never mind receive a bonus.
Most owners cannot remember the last time they had a meaningful influx of capital that wasn’t instantly consumed by playing catch-up, paying the taxman or wages.
Key man constraints
Most SMEs are one or two owner-centric or have one ‘key-man’ or rainmaker which begs the question, “what happens if one or more of these key personnel were no longer available to the business”?
It’s incredibly difficult to get capital out of an SME and larger acquiring companies see smaller ones as riskier, therefore valuations inevitably get compressed, resulting in lowly sales prices being achieved.
Owners frequently believe that VC money is easy to come by. Even if successful, owners end up giving away 30-50% of their company just to get some working capital.
Limited geographic location
SME’s can be very localized in their operational footprint and things can affect them that are completely out of their control, such as ‘Brexit’.
Owners get bored doing the same thing day in day out. The original idea in setting up was to attain freedom and more money, instead, the business ends up consuming both.