Getting customers to buy products and services has become slightly less of a problem for young firms in the past few years. However, getting them to actually pay for those purchases has become far more difficult.
The number of young firms that report slow or lost sales as their biggest problem fell from 53 percent in 2008 to 44 percent in 2010, though that still makes it the most oft-cited challenge, according to the latest report from the Kauffman Firm Survey released Wednesday. Now, compounding the sales problem is that the number of entrepreneurs who say late or withheld payments is their most serious concern jumped all the way from 2 percent to 14 percent in that same two-year period.
“Young firms are facing challenging financial conditions due to difficulty in receiving payments and limited access to credit to grow and thrive,” Robert Litan, Kauffman’s vice president of research and policy, said in a statement. He also noted that increasingly restricted credit from banks and other lenders was becoming a greater challenge, pointing to the fact that four of 10 business owners who sought credit in 2010 ran into some roadblocks, up from one out of three back in 2008.
“The cost to our economy of highly restricted credit from banks and other debt providers is that young businesses are prevented from adequately investing in their companies to fund growth and create jobs,” Litan said. Still, only 5 percent of firms cited credit troubles and falling real estate values as their greatest concern, falling well shy of sales problems and the unpredictability of business conditions (24 percent).
This is the seventh follow-up report from a study initiated in 2004, when Kauffman began routinely checking in on the progress of nearly 5,000 businesses that were founded that year. Roughly half of those firms have already permanently closed.
On a brighter note, the latest study showed that nearly two-thirds of surviving firms introduced a product or service that was new to one of their markets in 2010, while 14 percent introduced an improved process in the production of their goods or provision of their services.
Lately, when owners of new firms can get their hands on capital, they have largely been investing in long-term, intangible assets like brand development and worker training (45 percent of respondents). On the other hand, far less (12 percent) spent money on research and development in 2010, though those investments tended to be significantly more capital intensive.
This story has been updated to reflect a corrected release from the Kauffman Foundation, which shows that 14 percent of firms in the study reported problems securing payments as their top challenge.