For many businesses, generating a positive cash flow and steady income poses a challenge because business owners spend the majority of their business revenue on expenses. This then leaves them with a tiny fraction of money as profit.
So if you find that your business is constantly losing money and you have no idea why your small business is spending more than it makes, here are some reasons why your business might be losing money.
You are underselling your products or service
If you can’t answer this question, then it means you may not have found a middle ground to pricing your product. For example, if your cost price is more than your selling price, you are at a loss, or less than 40% of your cost price, you may be underselling your products.
But, don’t overdo it; because If your prices are too high, fewer people will patronize you. People will view your products as unaffordable and look for other cheap alternatives. Find a price midpoint to sell to your target market without losing profit.
Tip: Look into the market selling price of the product you are selling; this makes it easier for you to decide what percentage you want to sell.
You are paying for the labour that you don’t need.
Many small businesses tend to make a mistake by hiring more staff than they need and can afford. That’s why you hear things like companies own employees’ salaries for months because they do not make enough profit to pay them for doing their jobs.
Therefore, if your business is losing money, this is probably your 13th reason; you have employed more staff than you can afford. Your business isn’t making enough profit, so now you are swimming in debts and breaking your business.
A way to solve this problem would be only to employ the amount of staff you can pay. Then, modify and combine tasks to ration the money you have to spend on labour.
You have poor account management skills.
One of the many metrics for success is to monitor your business’s financial health, as it is the only way you can tell on paper if it can survive more business years to come. And so, a quick and easy way to track if your business is in the pit of bad account management would be not being able to tell how much money is coming in and out of your business’s bank accounts.
There is no room to be unorganised, inaccurate accounting; you need to track all your sales and expenses transactions. Sales transactions entail anything you sell to customers; generating and sending invoices falls under this category. And expenses entail internet subscriptions, electricity bills, maintenance bills, etc. When you spend more on expenses, you cause a negative cash flow for your small business.
Also, sometimes you find that you track your expenses, but you are still stuck; this could be because of entries that could put your business in the wrong spot.
You can avoid these errors by regularly closing and reconciling your books, conducting internal audits, and using a professional accountant to keep your business records.
How can Simplebks help you in account management: an easy-to-use accounting tool that allows you to keep track of all your finances at ease. Making it convenient for you to manage your business’s accounting.
Accounting Made Easy! 💛