The importance of generating a profit is something all small business owners can relate to. However, a large number of small businesses are lucky to break even, while others continue losing money until they’re unable to keep their doors open. To stay afloat, each aspect of your business must receive careful attention, so you can maximize your profits while minimizing your losses. Here are five ways your company may be losing money.
1. Poor Accounting
Razor thin profit margins make it necessary to track each penny that comes and goes from your business. Failing to log transactions or relying on inaccurate and/or time-consuming expense sheets can deceive you into thinking you’re doing better than you actually are. This can lead to overspending, which could ultimately result in negative cash flow.
It’s important to record all transactions accurately. Mixing numbers up or recording them in the wrong places seem like minor errors, but they can have devastating consequences to your bottom line. Conducting internal audits and reconciling your books regularly can help you spot these irregularities before they create more significant problems. You should also consider hiring a professional accountant to maintain your records.
2. Poor Pricing
If you price your products or services too low, you risk not making enough per transaction. For all you know, those customers might have been willing to pay more. If you set your prices too high, your customers will seek out cheaper alternatives.
Pricing can be tricky, but it’s far from impossible. A market analysis can help you learn more about the customers you serve and their potential needs. You can also look into what your competitors are charging for their products. Ask your customers what they think is a fair price for what you have to offer and how much would be too much.
3. Outdated Technology
With so many technological advancements, there’s no excuse to continue relying on obsolete technology. Modern systems, such as point-of-sale (P.O.S.) systems are designed to be scalable, allowing you to meet changing customer demands with ease. Transactions in today’s world take place at lightning speed, and if the tools of your trade can’t keep up, they could hurt your bottom line. You can also keep better information on how your business manages its budget and expenses with new technology that can cut the time and money that you spend. There’s plenty of software and systems that can be beneficial to your business.
Additionally, ignoring the power of marketing and branding could be making you miss out on some great opportunities. Many businesses don’t consider their brand an important aspect, but making even a small investment in it could make a difference. Same goes with social media and an online presence. Try to maximize the areas of your business that you know will help you get some profit. If you want to check out more, make sure to read up on our available services.
4. Combined Accounts
No matter how small your company is, it’s crucial to separate your business and personal accounts. Even if you’re a sole proprietor, combining the two can create an accounting nightmare. At some point, those funds are likely to get mixed up.
Suppose you have a family emergency that costs you several thousand dollars. Some of the money in your account belongs to your business, and that situation makes it far too easy to withdraw more money than is yours to spend. Money from your business can easily be lost this way, and it can be hard to figure out how much if you continue to run your company this way.
5. Too Much Office Space
Another thing to consider is whether you need as much office space as you’re using. While you might indeed need some type of storefront, there’s no sense in spending money on the excess square footage. Modern technology has made telecommuting more popular and practical than ever before. If your business is in a position where you can embrace this technology, you’d only need as much space as would be necessary for those employees that have to work on site.
There are many different ways a business can lose money. What’s important to remember is that money doesn’t vanish. It has to be spent somewhere, and it’s your job to figure out where that is.
Resources:
What’s it really costing you to submit expense reports manually? | Divvy
7 Ways to Stop Throwing Money Down the Drain | Inc.
Are Your Prices Too Low? It’s Time to Rethink Your Pricing Strategy | allBusiness
5 Ways Telecommuting Saves Employers Money | Entrepreneur
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