What are the biggest obstacles facing a small business?

What are the biggest obstacles facing a small business?

A team of field researchers visited a sample of small business owners weekly for a year to collect quantitative and qualitative data on their cash flows that shed light on small business economic decision-making, strategies and constraints as they navigate uncertain situations.

The result is presented in the form of the Small Business Diary (SFD), a study that provides insight into the financial lives of small businesses in low-income neighborhoods in developing countries.

Small Firm Financial Diaries is a global research project to be implemented in seven countries: Nigeria, Uganda, Ethiopia, Kenya, Indonesia, Fiji and Colombia, from 2021 to 2023.

This is being implemented by NYU’s Financial Access Initiative Research Center and Javriana University, supported by MasterCard’s Center for Inclusive Growth and its results will allow the design of development policies, financial services and future tools that help small businesses and their employees thrive.

The study aims to improve understanding of how small businesses can overcome the barriers they face to survive and thrive in the modern economy and thus contribute to poverty reduction.

Results in Colombia

In Colombia, the study focused on three industries with the potential for rapid growth in revenue and employees. Half of the companies in the sample are devoted to printing, repair and maintenance, and food preparation services. 30% in small industries, such as carpentry and metalworking; and 20% in agribusinesses, such as leather goods and food preservation.

The study, which was conducted in Bogota, Cali and Barranquilla, showed that although the country is distinguished because its small businesses show a higher monthly income than the rest of the countries, most of these incomes are less than 5 million pesos per month, which is equivalent to less than five of the minimum wage.

Ownership of bank accounts

Regarding the ownership and use of bank accounts, there is still work to be done, since only two-thirds of the companies in the sample in Colombia had a bank account. Although there are mobile wallets in Colombia that work through mobile applications and provide an easy and quick way to digitize payments, only a quarter of these companies have one, and most of them use it.

quality of life

A third of the employees of these companies in Colombia reported that they had difficulty obtaining enough money to purchase essential items for themselves and their families.

commercial credit

In terms of indebtedness, the companies analyzed tend to prioritize working capital over investment. Liquidity is not great and there are already enough earnings volatility and other operational risks that could lead to negative cash flows, according to the Social Fund for Development.

Difficulty maintaining stable jobs

The investigation found that employees could not count on fixed salaries. These tend to vary based on the company’s monthly revenue, which the study shows is highly variable. There are even employees who go a few months without getting paid. In Colombia, only a third of the employees interviewed had earned a salary for 6 months or more while studying.


Overall, the study concludes, stability is a priority for the entrepreneurs interviewed. According to the research, these companies face large fluctuations in their income and expenses.

In addition, the interviewees see “rising costs and supply problems” and “access to financing”, particularly liquidity, as the main obstacles to realizing their growth vision.

Studies such as the Financial Diaries allow us to better understand the dynamics of small businesses in Colombia.

What challenges do they face, how do they make day-to-day decisions, and the relationship with their employees, suppliers, competitors, and customers.

We note that the high volatility experienced by small entrepreneurs is transmitted directly to their employees, keeping them at a high level of vulnerability and job instability.

It is important, therefore, to look for tools to reduce the volatility of businessmen and also to protect the large workforce that they employ, ”says Luz Magdalena Salas, associate professor in the Department of Economics at Pontifique Universidad Gaviriana.

Full story at: https://www.smallfirmdiaries.org/colombia


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