Small and medium-sized businesses or enterprises are typically seen as the engines of the global economy since they often account for most of the employment growth in any given year.
Growing Stronger Together: Benefits and Challenges of Small and Mid-size businesses
What are small and medium-sized businesses?
Small and mid-sized businesses make up single-proprietor businesses to companies with hundreds of employees and hundreds of millions of dollars in revenue. Although the definition can vary by country, small and medium-sized businesses in the US and Canada have fewer than 1,000 employees. In the European Union, a small and medium business is an independent company with fewer than 250 employees.
In the US, a mid-size company usually has under 1,000 employees and less than $1 billion in revenue while small businesses average fewer than 20 employees. The US Small Business Administration classifies small businesses according to size, structure, earnings, and industry.
The importance of small and medium-sized businesses
The health of the global economy relies on small and medium-sized businesses. They’re important because they drive job creation, economic growth, and innovation. On average, they contribute over 50% of the gross domestic product (national income) of high-income countries, according to the International Labour Organization.
Governments increasingly recognize the importance of small and mid-size businesses and commit resources and programs to support them. Popular ways to support small and mid-sized businesses during the pandemic included various funding solutions, public loan guarantees, and tax relief. However, many of those programs are ending or have already ended.
Small and medium enterprises are important because they drive competition in markets—whether locally or around the globe. They benefit local economies by contributing to employment, tax revenue, and the success of other businesses. Small and medium businesses also make substantial contributions to global exports and distribution.
Highlights of the importance of small and medium businesses include:
- Job creation. Small and mid-size businesses account for over 70% of job growth in countries that follow the Organization for Economic Cooperation and Development (OECD).
- Economic growth. Small and medium businesses provide economic benefits like new jobs, products, and services.
- Small and medium businesses stimulate competition for product design, pricing, and efficient production.
Benefits of small and medium-sized businesses
There are several benefits of being a small and medium-sized business. From an ownership standpoint, campaigns that push buying locally are beneficial to independent small and mid-size businesses. In turn, owners tend to reinvest in the community by buying from local suppliers, contributing local tax dollars, and helping sustain other local businesses.
Small and medium businesses are often more nimble than larger corporations. Their smaller size allows them to adjust quickly to market changes or customer requests.
Benefits of small and medium-sized businesses include:
- Government contract eligibility.
- Access to coaching and education programs.
- More funding alternatives.
- Adaptability to market conditions.
There are also several benefits of working for small and medium enterprises. For instance, their employees often enjoy positive work cultures and supportive environments where input is welcomed.
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Other benefits of working for a small and mid-size company include:
- Creative benefits and perks.
- Better flexibility and work-life balance.
- Opportunities for career growth and advancement.
The challenges small and medium businesses face
Small and medium businesses face a litany of challenges. As customers increasingly choose to interact through digital channels, small and medium businesses must keep pace with the rate of adoption or risk being left behind.
Another challenge is expansion. Small and medium enterprises often lack the resources to perform market research before expanding internationally or going into new markets. Disruptions in supply chains also tend to hit mid-size businesses particularly hard. This is where size can be a disadvantage since larger companies hold more bargaining power.
Cybersecurity is a growing challenge for small and medium businesses. Small businesses are particularly vulnerable to ransomware attacks since they rely on antivirus software that often isn’t up to the task. Upgrading to an enterprise-grade security solution protects a business’s data, apps, and devices.
Some of the most difficult challenges small and medium-sized businesses face include:
- Cumbersome processes. Manual expense, travel, and invoice solutions are often inefficient and laborious.
- Difficulty tracking spending behavior. Tracking cash flow without an automated solution is difficult and overbearing.
- Incomplete or non-existent documentation. Manual processes result in missing paperwork for receipts and invoices.
- Long reimbursement cycles. Slow approvals and reimbursements due to manual processes hold up cash flow.
- Lack of talent recruitment and retention. Small and mid-size companies typically don’t have the internal human resources infrastructure to develop consistent recruitment and retention programs.
Overcoming many of these challenges begins with automation and collaboration tools that improve productivity. Combining tasks and processes by applying technology solutions allows a small and mid-size company to save time and streamline workflows.
How small and medium-sized businesses can grow
It’s important for small and medium enterprises to invest in capabilities to manage and spur growth, particularly in areas like administrative tasks and human resource functions.
Another way small and medium enterprises can spur growth is through access to technology and collaboration tools. Implementing agile tools that streamline operations, reduce costs, and increase efficiency keep businesses ahead of the curve and ready for additional growth. Using analytics tools helps gain insights into customer behavior and trends.
Other ways to help a small and mid-size business grow include:
- Increasing operational efficiency. Adopting technology decreases the administrative burden of manual processes and labor-intensive tasks.
- Adapting quickly to change. Cloud-based planning systems combine human resources, finance, and payroll functions so businesses can access real-time data and analysis.
- Improving recruitment and retention. As small businesses become mid-size companies, employee engagement platforms can play a key role in employee satisfaction and retention
Take advantage of digital transformation to support growth
The push to digitize means there are new opportunities for small and medium businesses, especially when it comes to connecting with customers and improving collaboration among employees. To capitalize on the digital transformation, small and medium businesses should continue to make it easier for employees to work together by adopting modern technologies.
Collaboration tools for medium size businesses enable remote and hybrid workers to meet, share files, and track projects efficiently. They also allow businesses to connect with customers and suppliers without the cost of travel. Continue growing your mid-size business by looking for ways to integrate disparate systems and processes, particularly by applying technology tools designed to streamline functions and facilitate collaboration.
With the right technology, a small and medium-sized business can speed up decision-making and help maintain their competitiveness in the marketplace.
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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.
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