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Do this if your business is losing money

Your business is losing money - Guide My Growth

If your business is losing money, immediate action is needed. At the same time, you should not make drastic changes without taking the time to consider the consequences. Here is a 7-step approach so that you can turn things around and improve your profitability.

1. Evaluate Your Revenue and Expenses

Start by evaluating your monthly cash flow: the amount of money coming in compared to the amount flowing out of your business every month.

Make a two-column list: one showing all your revenue sources and another showing your expenses. Make sure to consider all the expenses your business pays for, including any personal expenses.

If your business is losing money, it means that your expenses are higher than your revenue. With the list that you have, mark your highest expenses and your most profitable sources of revenue.

2. Identify Money Leaks

Money leaks are those expenses that appear to be necessary to run your business but that are not truly essential.

Review every single expense on your list and ask yourself the following question: “Can your business survive without this expense?”.

If yes, cut that expense from your budget. If no, ask yourself another question: “Are there any alternatives that are cheaper?”. If alternatives exist, determine how quickly you can switch to the alternative.

After your review, also take a look at things that you have already bought. Can you sell any furniture, supplies or equipment to generate some additional cash? If yes, do so.

3. Check your prices

All businesses want to attract more customers. However, following a lowest-price strategy is not the best strategy for a small business.

  • Reason number one, there will always be another competitor who will be able to offer a lower price than you. Your business cannot succeed at this strategy unless you have huge cash reserves or are big enough to outlast your competitors.
  • Secondly, you will struggle to make a profit. Low prices usually mean low profit margins. The average profit margin in business is 10%, but in your industry, it may be higher or lower. Research your competitors to find out more.
  • Thirdly, customers may believe that what you are offering is low-quality and prefer to buy another product if they can afford it. It is better to offer multiple options so that customers can choose.
  • Most importantly, you will not get loyal customers. Customers who come to you because they are looking for the lowest price will abandon you as soon as they can get a better price elsewhere.

In short, there are many reasons why your prices should reflect the value of your products. Look for ways to increase prices without losing customers.

One easy way to do this is by cutting costs. Another is by increasing the perceived value of your product or service for customers. The best way to achieve that is by making sure you have a strong unique selling proposition (USP).

When your business is losing money - Guide My Growth
Photo by Igor Ovsyannykov

4. Reduce the number of products you sell

Many businesses sell a huge variety of products or offer many different services. Sometimes, this works well, but it can also make it harder for the customer to know why they should choose you.

Instead, take some time to identify the products or services that have the highest profit margin. These are the top products or services that you should be selling.

Once you have determined these, start getting rid of other products. There are various ways to do this without a 100% loss:

  • use them as promotional items that you offer at cost
  • bundle them in a package with your most profitable products or services
  • use them as prizes in contests or raffles to attract more customers
  • use them as part of a customer loyalty strategy to reward loyal customers
  • donate them to an NGO or community in exchange for some publicity

Reducing the number of products or services you sell will let you focus your attention on what is going well in your business and can help you turn the business around.

5. Cut costs and reduce expenses

In addition to identifying your money leaks, look for ways to reduce your essential costs.

A good place to start is by assessing your payroll. Do you have employees or do you use contractors? This is usually one of the biggest expenses for any business.

Look for ways to reduce your labour costs. Can you take on more work yourself? Can you bring in family members to help you? Can you use a barter system with other businesses to reduce expenses?

Make sure to also carefully consider even those expenses that you believe cannot be cut, like rent. Is there a way that you can reduce them?

For example, with rent, do you need to maintain the building you are renting? If you are a service business, it may be possible to introduce some remote work options. Or to work from client offices in addition to working from home.

If you have a retail business or a restaurant, you obviously need the building. But it may be possible to sublet part of your office to somebody. Or to create opportunities for a business partnership.

Do this with all the costs and expenses that your business has.

What to do if your business is losing money - Guide My Growth
Photo by Andrea Piacquadio

6. Always maintain great customer service

Having great customer service is one of the best ways to generate more sales.

If your business is not yet providing the best possible customer service you can provide, focus on improving this while you work to make your business profitable again.

Great customer service keeps customers coming back and spending more in your business. In addition, it leads to referrals and word-of-mouth publicity that will bring in new customers.

It is also one of the best strategies to retain customers.

Higher customer retention rates mean less marketing expense for you, less time and effort spent trying to attract new customers and more time to spend on making sure your business starts making profits again.

7. Create a 90-day action plan to increase sales

Once you have completed the above steps, your focus should be on how to make your business profitable.

In the coming weeks and months, keep paying attention to your monthly expenses and revenue development. Set a goal for yourself to keep saving money as time goes on. This will help increase your working capital.

But you will need to do more than that.

Create a 90-day action plan to help you increase sales. Using a 90-day time frame will give you time to see if what you are doing is working.

Make sure to monitor developments.

At the end of the 90 days, review your results and make changes as necessary. It may also be helpful to find a business advisor or mentor to provide some feedback.

If nothing you do makes any difference, you may need to consider finding a new business venture or ending your business. Whatever you do, do not keep using your personal funds to maintain a business that is losing money.

I help small & medium businesses generate higher profits so that they don't have to waste time chasing funders

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2 thoughts on “Do this if your business is losing money”

    1. Hi Mashoko, happy to hear that you found this helpful. :-) Did you sign up for my newsletter? If yes, you will receive an email any time I share insights on my blog.

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