10 big challenges of starting a business

Starting your own business brings many benefits.

Doing something that you love and attracting customers to buy the product or service you've created is hugely rewarding.

Growing a company and providing jobs for other people can be another big thrill.

But running your own business is not easy.

Working for yourself without the safety net of being an employee can be a lonely, frustrating and challenging experience.

By understanding the challenges you might face and how to deal with them, you'll be much better prepared for potential problems and give your business the best chance of success.

In this article we’ll go through the ten biggest start-up challenges and what you can do to overcome them.

1. Failure to plan for the future of your business

Challenge: With the excitement of a new business idea, it can be tempting to launch without much forward-thinking.

Yet a lack of planning can mean your business runs out of cash or isn’t prepared for vital activities such as marketing or dealing with suppliers.

Business owners who plan and set themselves objectives are more likely to succeed.

Action: Create a detailed business plan that covers areas such as marketing, staffing, finance and sales.

A business plan is like a map for your business. 

It's a written guide that spells out what your business aims to do and how you're going to make it happen, step by step, over a certain timeframe. 

Think of it as a tool that helps you (and anyone else who reads it) get a clear picture of how you'll earn money and keep your business going strong. 

Inside a business plan, you'll find your objectives, how you plan to reach them, your marketing and sales strategies, and your financial predictions for the future. 

It's a good idea to regularly review and update your plan as the business develops.

Download our business plan to help you get started.

When you apply for a Start Up Loan, we’ll appoint a business advisor to help you develop your business plan, sales assumptions, and personal survival budget.

2. Lack of demand for your products and services

Challenge: Understanding the market need for your product or service is a crucial aspect of your business plan.

Without enough people willing to buy your product or service, your start-up won’t succeed, no matter how great your idea.

Action: Spend time conducting market research to collect information about potential customers.

Market research is all about gathering information on the people who are most likely to buy what you're selling. 

This research can tell you how big your potential market is, what makes you different from others, what your future customers love (and don't love), how much they're willing to spend, and how you can make your products or services even better.

Skipping market research is like walking blindfolded - you might end up making expensive mistakes. 
You might think your idea is a hit because your friends and family say so, but real market research replaces guessing with facts.

Researching your market helps you figure out if people actually want what you're planning to sell and if your business idea is viable, saving you from investing time, effort, and money into something that won’t work.

Plus, if you're looking for finance to help you start your business, market research can be extremely beneficial. 

Banks and investors value seeing evidence that customers are genuinely interested in what a business is selling. 

It shows them you're not just making wild guesses – you've really thought this through.

Another benefit of market research is that it will help reveal your target market’s size and help you decide if there is enough demand for your business idea.

3. Ineffective marketing of your business

Challenge: It can be easy to get caught up in the latest marketing trends and spend lots of money on marketing techniques that end up costing you more than the sales they generate.

Action: Marketing should be effective, if it’s not then you won’t see much of a return on your investment and your customer base could wither away.

Marketing encompasses all the efforts you make to get the word out about your products and services. 
It's a big umbrella that includes advertising, promotional deals, customer support, and building your brand’s reputation.

For any new business, marketing isn't just helpful; it's a must-have. 

You could have the most innovative product or service on the planet, but if no one knows you exist, those sales just won't happen. 

Marketing is what introduces your offerings to potential buyers.

One of the things you should do when getting ready to launch your business is to create a marketing strategy for how you intend to reach your customers.

When you perfect your marketing strategy, it doesn't just catch people's eyes—it convinces them to open their wallets. 

Good marketing boosts your brand's visibility, gives customers a compelling reason to choose you, and drives sales. 

Most start-ups operate on small budgets, so investigate different marketing methods.

Are there low cost or even free ways you can reach your target audience?

If you have funds for marketing, invest wisely in the most appropriate tactics.

Measure all the marketing activity you do and adapt your tactics if necessary.

Consider outsourcing your marketing to an expert if you lack the time and skills to do the job yourself.

4. Knowledge and skills gaps

Challenge: As a first-time entrepreneur, it’s unlikely you’ll know everything about running a business.

A lack of knowledge can lead to avoidable mistakes that could cost your business money.

You’ll also need to overcome enormous demands on your time and energy setting up a business.

Action: Absorb as much information you can, particularly about the industry that you’re entering, the customers you're targeting, and the competitors you face.

You should also learn about critical areas such as finance, marketing and sales, so read business advice websites, attend events, join business groups, and seek mentors.

It takes a lot of work to build a business, so you need drive and energy.

Being self-confident is a bonus.

Ultimately though, you need to be honest about where the gaps in your knowledge lie and put together a plan to either develop those skills yourself or hire those skills into the business either through outsourcing or bringing in new employees.

5. Financial management of your start-up

Challenge: Poor financial planning is one of the biggest reasons start-ups fail.

If your costs are greater than the revenue coming in, your business won’t succeed.

Action: You need to understand all the costs your start-up will incur and make sure that your products or services are priced appropriately to make a profit.

The first thing you'll need to do is to create a cash flow forecast.

A cash flow forecast is like a financial crystal ball for your business. 

It helps you predict the money you expect to flow in and out across different areas of your business over a certain period. 

This can be really helpful when it comes to making big decisions, like whether to take on new projects, buy big-ticket items, how much to charge for your products or services, or invest in growing your business.

Cash flow forecasts can be set up to cover short, medium, or long term horizons.

For the short-term, a cash flow forecast might look just 30 days ahead to help you spot whether you'll need extra cash soon or if you'll have more cash than you need.

If you're thinking a bit further ahead, a medium-term forecast could stretch from a month up to a year, helping you plan for the not-too-distant future.

Finally, if you're a real forward-thinker, a long-term forecast can take you from one year to five years or even beyond. 

These are great for getting a bird's-eye view of your business's financial future, though keep in mind, the further out you go, the hazier the prediction due to number of factors that could impact it like market trends or whether the economy is in a boom or a recession.

6. Securing funding for your start-up

Challenge: One way to manage your cash flow is by securing funding, but raising finance can be challenging and it can be hard to know where to get cash for your business idea.

Action: Research the types of funding open to you and gather the information you’ll need to share with investors, such as a business plan and cash flow forecast.

Entrepreneurs typically make use of a range of different types of funding to support their start-ups including:

Business grants

Business grants are funds given by the government or private organisations aimed at helping businesses grow, learn, or innovate. 

You don't need to repay them, nor do you have to give up a piece of your company in return. 
In the UK, plenty of these grants are up for grabs, especially in sectors like energy, export, and innovation, where there's a big push for progress and growth. 

While some grants can reach up to hundreds of thousands of pounds, most tend to offer a few thousand pounds. 

This means you might need to look for additional funding sources to fully support your project or expansion plans.

Equity finance

Equity financing is a way of getting extra funds for your business by selling pieces of it, known as shares, either to people who already own some or to new investors. 

This doesn't necessarily mean giving up control of your company; the new investors might only own a small part of it. 

Some popular options for equity financing for start-ups include angel investment, equity crowdfunding, and venture capital.

Debt finance

This refers to the process of raising money for your business by borrowing it from a lender, commonly a bank. 

In return for the loan, the lender charges interest on the money borrowed. 

Lenders typically require monthly payments until the original sum plus interest accrued, is paid off. 

You could consider a Government-backed Start Up loan, which provides unsecured funding at a fixed interest rate of 6% per year. 

You can apply for a Start Up Loan of up to £25,000.

Personal savings or a redundancy payment 

Some entrepreneurs, prefer not to borrow or sell part of their business to an investor. 

Instead, they will make use of their own personal finances to build the business from scratch, a process typically known as bootstrapping. 

7. Hiring the right people for your start-up

Challenge: The people you recruit as employees can greatly harm your start-up’s success.

A negative employee can quickly damage team morale and productivity.

It’s tough having to fire someone but having the wrong people in your start-up can be very disruptive.

Action: Hiring employees for your new business involves more than just picking the right candidate and getting them started. 

There's a whole set of legal duties and responsibilities you need to be aware of as an employer. 

Understanding an employee's rights is crucial before you bring on your first team member. 

Mistakes in this area can lead to wasted time, money, or even impact your business's profits negatively.

Your first hire is an important one, so spend time making sure you find the right person.

When recruiting, it's important to look for people who share your values and have valuable experience.

Once you have a team, create an open and transparent business culture.

Encourage clear and open communication with your staff, so you understand their strengths and weaknesses.

This may also help you deal with staff issues if they arise.

Read our guide on how to create a healthy work environment for staff.

8. Leadership and setting objectives for your business

Challenge: As your start-up grows and you build a team, your employees will look to you for strong leadership.

Action: Be clear about your business’ mission, vision, and objectives.

For any new business, having a strong sense of purpose is key. 

With a well-defined mission and strategic goals, your business stands a better chance of thriving. 

Making a plan for your business's aims and objectives shouldn't just be a launch activity but an ongoing priority, even for businesses that have been around for a while.

It's easy for startups to focus on their immediate goals at the beginning, but over time, it’s common for that initial clarity and drive towards strategic aims to fade. 

Crafting business goals isn’t easy; it requires a deep look into how your business operates and setting a clear vision for where you want to be in three to five years.

Once you have those objectives, it’s important to communicate them clearly to your employees.

Employees should understand their objectives, the company’s overall goals, and be fully on board with the direction the business is taking.

Make sure staff remain motivated and be sure to look after their wellbeing.

9. Time management and productivity

Challenge: Managing your time effectively is crucial when launching a start-up.

New business owners have to wear so many hats that it can be easy to get distracted and focus on the wrong areas.

Action: Planning is vital as it will keep you on track and focused on your goals.

You can easily end up working in your business rather than on your business, so dedicate a set amount of time each week to reflect and analyse areas that need attention.

Consider using time-management apps to create lists of tasks you can tick off as you go.

If you have an important task to complete, find a quiet area to do it and turn off email, app, and messaging notifications.

Outsourcing tasks is another way to manage your time better.

For example, rather than building your website or managing your tax returns, handing it over to a web designer or accountant can be more efficient and cost-effective.

Read our guide on workload management and how to prioritise your workload

10. Impact on your health as a start-up founder

Challenge: Running your business isn’t like having a 9 to 5 job.

Without care, it can be all-absorbing and take over your life.

You need to take steps to safeguard your mental and physical wellbeing.

Action: Starting a business comes with its fair share of stress, and it's important to look after your mental health during this time. 

The process of turning your idea into reality can bring about various pressures that might harm your mental well-being.

Working long hours, juggling numerous tasks, financial concerns, and facing uncertainty can lead to burnout for many small business owners. 

In fact, a study by the London Business School revealed that entrepreneurs are 50% more likely to experience a mental health condition compared to the rest of the adult population. 

Taking care of your mental health isn't just good for you; it's crucial for the success of your business too.

Make sure you get enough sleep and take regular time away from work.

Have breaks during the day, eat healthily, and get regular exercise.

Having a co-founder helps share the load, while joining networking events and business groups can give you access to fellow business owners who face similar challenges.

You could also look for a mentor. A Start Up Loan includes 12 months of free mentoring.