Here are 8 pain points that SMEs most commonly face and some resources that may make the entrepreneurial journey easier for you
The impact that small and medium enterprises (SMEs) have in our economies is stunning. Making up 99 per cent of the enterprises in Singapore, for instance, the 180,000 local SMEs contribute to almost half of the GDP and employ 70 per cent of the workforce. Similarly, in Hong Kong, the 320,000 SMEs account for over 98 per cent of business entities and provide employment to nearly 1.3 million people.
Yet, SMEs are also the most likely to face a whole host of challenges associated with their lean teams, slim margins and tight finances.
Today, we lay out the top eight pain points that small and medium businesses most commonly face, and point you to some resources that may make the entrepreneurial journey easier for you:
1. Managing cash flow
With slim margins and limited resources, small business owners are always concerned with making sure that the balance sheet is, well, balanced. SMEs need to have a thorough understanding of their sales margin in order to ensure that their revenue covers not only the cost of goods but also overheads and the costs of financing. It is no surprise that one of the key challenges hindering efficient cash flow in SMEs is the problem of late payments by customers. For small businesses with low cash reserves, this poses a headache.
Things are looking up. Banks in Singapore are looking to grow their SME lending. Maybank Singapore is targeting retail SMEs with revenues of up to S$20 million (US$13.9 million)) while DBS announced a loan structure to help SMEs cope with restructuring costs. SPRING Singapore also launched a S$2 billion (US$1.39 billion) SME Working Capital Loan Programme, under which SPRING Singapore will co-share 50 per cent of loan default risks with participating financial institutions and SMEs can apply for unsecured term loans of up to S$ 300,000 (US$ 208,000).
On a day-to-day basis, SME owners can also take things into their own hands by drafting legal documents that set out favourable payment terms in order to obtain timely payment and optimise cash flow. This article highlights 5 must have business documents to improve your cash flow.
Want to know how else you can use essential legal documents to optimise cash flow? Download a free eBook on managing your cash flow.
2. Hiring and keeping staff
Human resource management is a constant challenge for SMEs. Based on a survey by DP Information Group, an information and credit bureau in Singapore, difficulty in hiring staff and high manpower costs were the top two business concerns in both 2014 and 2015. Maintaining a good team is a necessity even when the business environment is tough or your small business is going through a tough time, evident from a survey of SMEs in Hong Kong which indicated that they planned to hire staff despite low confidence in Q1 this year.
SMEs might not be able to offer the best remuneration packages for their employees, but there are other ways to keep your employees happy and motivated. For example, you can incentivise employees without burning a hole in your pocket. You might also want to consider hiring freelance consultants instead of taking on a full-time employee for fixed term projects with once-off deliverables – such as building a website or designing a brand identity for an event. In that case, make sure you know the key differences between independent contractors and employees and the relevant legal rights and obligations.
3. Dealing with customer complaints
Customers are vital to your business. At the same time, customers are increasingly sophisticated and know what they want. According to statistics by the Consumers Association of Singapore (CASE), the three industries that received the most complaints in 2015 were the motorcars, electrical and electronics, and the beauty industry. Nevertheless, customers are not your enemy. Check out these 10 tips for dealing with customer complaints to keep customers on your side.
Here are 10 tips for offering good customer service (adapted from Small Business BC):
- Listen. Show customers that you are aware the problem and don’t be dismissive.
- Apologise. Rather than engaging in fault-finding, acknowledge the problem and deal with it immediately.
- Take them seriously. Make customers feel important and appreciated, and not laughed at or spoken down to.
- Stay calm. By staying calm, you’ll allow your customer to feel that you’re in control of the situation and that you can help solve their problem.
- Identify and anticipate needs.
- Suggest solutions. Have at hand a pre-determined menu of solutions that you and your employees can turn to, whether this is a refund, or vouchers that the customer can return to use in the future.
- Appreciate the power of ‘yes’. Make doing business with you easy.
- Acknowledge your limits. At the same time, be upfront when you are unable to fulfil their requests and ensure that you can keep your promises to your customers.
- Be available. Identify key pain points and situate information on avenues for help there.
- Get regular feedback. Provide avenues for your customers to offer feedback, whether this is an online form or a targeted customer satisfaction survey.
4. Promoting your business with online marketing
Today, businesses have more ways and places than ever to market themselves.
Consumer expectations have changed, and competition is no longer local but now global. Deciding on a marketing method, particularly when you have a small budget and limited resources, can be difficult. Social media marketing is available for free, but it can be time-consuming. The same goes for blogging. Traditional print advertising, as well as digital advertising, can be expensive.
So which marketing channels are best for SMEs? Explore different tools in this article on expert online marketing tips for SMEs.
Keep in mind that a mix of marketing tactics is key, as visitors pass through a purchasing funnel before they are converted into customers. HubSpot has useful resources for online marketing based on its inbound methodology.
5. Rising costs and competition
Running a business in modern, first-world economies like Hong Kong and Singapore can be a challenge given the high overheads and strong competition. The rising cost of office rental, as well as growing costs of raw materials, have squeezed the profit margin for small businesses.
Thankfully, there are ways to manage costs even in expensive cities like Hong Kong and Singapore. While co-working spaces are often associated with start-ups and techie entrepreneurs, SMEs who use co-working spaces agree that it may be a more cost-effective alternative to rented office space. It allows you to scale the size of your operations up or down rapidly with lower costs, and review the terms of your stay more frequently than fixed leasing arrangements which tend to be of a longer duration.
Also Read: Co-working is booming in China, here’s why
Image Source: The Working Capitol
The Working Capitol, The Hub and Paperclip are just some spaces where Dragon Law has previously held its Legal Startup Academy classes, so we can attest to the fact that it provides not just a more cost-efficient solution but also a community that understands the challenges you are facing, but there are many more options that SMEs can explore.
6. Protecting ideas and commercial assets
Intellectual property (IP), which comprises trade marks, patents, copyrights and trade secrets, is a core asset of a business. Yet, SME owners neglect to properly protect their IP rights as they are daunted by the application process unaware of what can be protected. As a result, SMEs run the risk of having their ideas stolen. There have been instances where businesses have entered into negotiations or consultations with potential clients who did eventually not engage them, but adopted the ideas proposed in the early meetings.
Whenever your business develops intangible human creations, it is key that you protect these creations. Your business has information that should remain private, such as customer databases, financial information, or new business ideas. A Confidentiality Agreement (or Non-disclosure Agreement) is your first line of defence to protecting this information. This legal document creates a confidential relationship between your business and any contractors, employees, and other business partners who might get a behind-the-scenes look at your operations.
There are actually different types of IP, and any business dealing with creative or proprietary materials should learn about the differences, especially to determine what you need to qualify for IP protection.
7. Dealing with regulation and staying up to date
While doing business in Hong Kong and Singapore is relatively manageable administratively, it is important as a small business owner to stay up to date.
Legislation changes frequently, and not being up to date puts your small business at risk.
SMEs looking to expand overseas might find it a challenge to figure out what the relevant legal and taxation requirements are in other markets. Having to deal with local regulation just adds more to your plate.
Many business owners understandably wish to engage in-country experts to help navigate bureaucracy and other administrative hurdles. This inevitably raises expansion costs. In addition, a potential pitfall that entrepreneurs make is putting too much attention into overzealous expansion and neglecting the home market.
One solution is to cut costs locally where it can be helped. For instance, at Dragon Law, our online platform offers basic legal documents in Singapore, Hong Kong, Malaysia and New Zealand. What this means is that we have suites of legal documents that are kept updated when it comes to the relevant laws in these jurisdictions. If you are looking to expand your business in these markets, having basic documents in place will shave off both administrative hassle and cost. You will then be able to direct your resources towards engaging experienced lawyers or consultants who will be able to advise on the legal risks involved.
8. Time management
On a personal level, many small business entrepreneurs find juggling their various roles within the company a challenge. At the business level, the leadership team may find it hard to decide which business needs to prioritise. For almost 9 in 10 SMEs in Singapore, their immediate priorities of managing day-to-day operations causes the task of mapping out a long-term business strategy to take a backseat.
A natural solution to the perpetual time crunch is to employ technology to automate basic tasks. According to a survey the Singapore Chinese Chamber of Commerce and Industry (SCCCI), more than 70 per cent of Singapore’s SMEs applied for various government assistance schemes. A key business function that SMEs can afford to save time and money on is legal. The online platforms that have emerged in Asia to help SMEs with a range of legal needs, from drafting contracts to trade mark registration, are perceived as efficient, hassle-free, and cost-effective.
This article was first published on the Dragon Law blog.
The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, submit your post here.
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