Business and profits go hand in hand. You may be able to absorb some losses in your business, but at some point, the lack of finances would become unsustainable. After all, you are in business to make money, right? Otherwise, what would be the point of working so hard?
So when you try to balance the books and notice that your sums are always in the negative, you need to stop what you are doing, and reexamine your transactions.
As long as your business continues to lose money, you should consider yourself the captain of a boat with a big unseen leak that needs plugging. Pronto! Without plugging that leak, you will find yourself treading the cold icy waters in no time.
You therefore need to ask yourself some questions.
Why is your business bleeding money?
Where’s is the leak?
What’s draining your finances?
Who is causing the business to go at a loss?
You need to look at all aspects of your business. The right questions must be asked in order for you to discover where the problem is.
- High Production Costs
The cost of producing your products can greatly affect your bottom line. It’s important that you reexamine every aspect of your production process.
Are the raw materials too expensive? Are there any tariffs responsible for the high cost of production? Do you use inefficient production systems? Are you producing products that exceed the demand and therefore go to waste?
- Labor Costs
The cost of labor can also affect your profits. It’s important for you to analyze the effect of labor on your business with clinical detachment.
What’s the overall cost of labor in your business? Are you paying too much for salaries and wages? Do you have too many employees? Are you paying for labor services not rendered? Is your business location one with a high hourly rate for employees?
- Administrative & Operational Costs
No business can run itself. You therefore have to account for the administrative and operational costs of doing business.
So, what are the overall costs of running and managing your business? Are your overhead costs too high? Are you paying too much for your business space? What about your utility bills? Are they excessive and unnecessary? Are the people in charge of managing your business in your absence worth the money you pay them? Are your administrative business systems effective and efficient? Are you replicating some administrative tasks?
- Low Sales
Just because you have everything in place does not mean that you will generate enough revenue to produce the profits that you need to make the business worthwhile.
Low sales could be part of your problem. It could point out on the areas with leaks that you need to work on.
So, are you selling enough products to cover all your business expenses? Are your products priced high enough to generate the profit margins you seek? Is the quality of products you sell so low that it’s affecting your business reputation and in turn repelling customers? Are you losing money by having to replace products that do not meet the required standards?
- Unaccounted for Debts
There is nothing wrong with having a few good debts so long as you can use them to leverage your business growth. It’s only when the debts act as a stumbling block to your business that you should worry.
Check out your transactions again. Are there any clients who bought your products on credit but have not yet paid for them? Do you have business loans that you borrowed to finance your business? Are the interest rates and monthly payments too high and unmanageable?
- Poor Record Keeping
No human being is perfect – and that includes you and any employees that work for you. Human error could be responsible for the losses you think you have. A few questions need to be asked in this regard.
Are there any transactions that you have not recorded? Have you made the mistake of duplicating your transactions, especially those on the expenses side? Did you make the wrong calculations from the very beginning?
Wouldn’t be great if your business loss is as a result of poor record keeping and not something more serious? Take a good hard look at those records again!
- Theft Aka Embezzlement
If you reexamine every aspect of your business and fail to come up with the answers you are looking for, it’s time to face the reality: you may have a thief in your midst.
Large corporations can withstand lots of financial turbulence. Not so with small businesses. That’s why you need to be very wary of possible theft.
So, onto the million-dollar question: do you have a thief in your midst? Who is responsible for handling your business cash and records on a daily basis? Could more than one party be draining your business of its much-needed finances? Is there any hope of you getting your money back at all?
The good thing about facing the tough financial questions is that you will be able to deal with whatever issue that comes up after that. Once you determine why your business is bleeding money, and where your leak is, you can get down to the business of plugging the hole. Only then will your business be able to begin to generate profits again. And you can proceed to laugh all the way to the bank.
