Biggest Challenges Small Businesses Are Facing in 2023

In honor of Small Business Month, a lot of statistics have just been released about small business owners, their best practices, and typical behaviors in 2023. Take a look to see how your small business stacks up.

Conquering a possible recession and other challenges faced by small businesses

The 2023 Small Business Owner Report (SBOR) from Bank of America reveals that while 72% of small business owners are worried about the impact of a possible recession, 76% are confident they can survive an economic downturn.

The business owners surveyed share other economic concerns, including:

• Continued inflation—79%
• Commodities prices—68%
• U.S. political environment—68%
• Rising interest rates—67%
• Supply chain disruptions—57%

The Market Outlook: Research Insights Into the Changing Landscape of Small Business report from ADP reveals some overlap with the challenges noted in the SBOR as well as different ones. ADP says the “top-tier challenges” shared by all small businesses surveyed for the report are:

• Finding qualified employees—45%
• The economy—35%
• Wage inflation—29%

In addition to these challenges, some specific industries face other issues. For instance, small businesses in the construction industry and retailers and wholesalers also cite “supply chain disruption” as a top-tier challenge. Plus, some businesses report struggling with “increased production costs,” particularly retail and wholesale companies and those in the accommodation and food industries.

Challenges of employee attraction and retention

Both the SBOR and the Market Outlook show that small businesses are still struggling to find and retain employees. The SBOR reports that in the past year, business owners focused on keeping staff by adding benefits and perks (53%), including remote and hybrid work (34%), cost-of-living bonuses (34%), and more vacation time (33%).

These efforts paid off, with 75% of business owners saying they positively impacted employee morale and retention.

And more entrepreneurs (34%) also plan to hire, up from 26% in 2022. Their plan to attract new workers is to add employee benefits and perks, including:

• Raising the base pay for new employees—54%
• Offering remote and hybrid work—30%
• Introduced new employee training or resource groups—27%
• More healthcare benefits—27%

The struggle with employee attraction and retention is also reflected in SCORE’s Spring 2023 Megaphone of Main Street: Employee Engagement report, where 59.2% of small business owners expect their employee-related challenges to continue for at least another year. However, they’re “taking action” by increasing wages and:

• Building connections to their company culture, mission, and values—46.2%
• Offering professional development and training opportunities—41.3%
• Providing bonuses and/or profit-sharing—39.2%
• Incorporating flexible and/or remote work options—36.8%

ADP’s Market Report takes a deeper dive highlighting the specific challenges businesses with less than 50 employees have with employee attraction and retention.

Challenges for finding employees:

• 49% say candidates don’t want to work
• 36% say candidates don’t show up for interviews
• 20% struggle with putting together a competitive compensation package
• 12% keep losing candidates to competitors
• 7% say they don’t have enough benchmarking data to structure a compensation package

Challenges for retaining employees

• 61% say their employees want higher salaries
• 39% say there’s a disconnect in job expectations
• 35% say their staff wants to work fewer hours
• 33% cite competition from other businesses
• 22% say their employees want traditional benefits
• 17% have trouble onboarding new hires

Employees and working from home

All three reports show that employees want flexible work hours and schedules, so many small businesses now offer remote and hybrid work to attract and retain employees. This likely explains why 35% of employees “spend an average of an hour a day working from bed,” according to new research just released by Office Depot.

Before the pandemic, employees working remotely operated from hotels (43%), homes of friends or family (36%), coffee shops (28%), their cars (28%), and the beach (8%). Today, 63% of remote workers have home offices. The desire to work from home is so strong, according to the survey, 55% of people who recently moved did so partly because they needed a better home office workspace. To achieve this, the average remote worker invested about $1,700 of their own money on equipment or tools, and 30% have “remodeled” their workspace at least three times since starting remote work.

What tools do remote workers rely on? Those surveyed say the “underrated” products they most appreciate are:

• Adjustable chairs—24%
• Spacious desks with storage—22%
• Organizational tools like planners or desk organizers—10%
• Laptop stand/riser—9%

And 70% say they still need to buy new products to make working from home better, including more storage (36%), office décor (34%), larger desks (34%), an additional monitor (30%), and a high-quality camera for video calls (27%).

Employee appreciation gives small businesses a competitive advantage

According to SCORE’s Megaphone, “Disengaged workers are more likely to leave, and replacing talent is expensive. How expensive? Gallup says employers regularly spend half to two times an employee’s annual salary to find and train their replacement.” Small businesses cannot “typically afford that expense.”

But the report also reveals that small business owners are more optimistic now than pre-pandemic. SCORE says one reason for the optimism could be that small businesses “now see their size as an advantage instead of a liability. There’s widespread recognition that small businesses have other superpowers that can help them attract and engage workers.”

Small business 'superpowers' include:

• Offering health & wellness programs—12.5%
• Instituting diversity, equity, and inclusion programs—5.7%
• Offering childcare benefits—4.3%

Statistics show money matters in 2023

That optimism is also expressed in the SBOR, with 65% of business owners reporting they expect to make more money this year than in 2022, when 56% increased their revenues from 2021—and 48% plan to expand their businesses in the year ahead.

To do this, the SBOR reports that 82% of small business owners plan to obtain financing versus 70% in last spring’s survey. Obviously, cash flow is an issue for small businesses, underscored by a new American Express survey that shows small business owners are looking for consolidated cash flow management tools to “foster greater efficiency, profitability, and business growth.”

Because they want to increase productivity, 73% of small businesses surveyed are considering consolidating cash flow management data and products into one platform. According to the survey, 60% of small businesses currently use two to three cash flow management products, with 62% spending at least five hours a week on various platforms, and 18% spending 10 to 20 hours weekly. Most (71%) believe consolidated cash flow “management tools would make them more efficient and give them more time to spend “working on their actual businesses.”