When your business has more expenses than income, you’re operating at a loss. Most companies experience this especially in their first six months when they are still introducing their products and services to the market. But if your business has been around for quite some time and yet, you’re constantly operating at a loss because of low sales, it’s time that you take action. In this article, you will learn about the ways to boost your business and recover from massive losses.
How do you know that your business is operating at a loss? There are a few signs to consider. First, you will notice that you don’t have enough money to pay the bills, which include your rent, utilities, salaries for your employees, and other operational costs. Second, you’re not reaching your target sales. For example, your aim is to sell 100 pieces of pastries every day but you are only selling an average of 50. All these results to a negative profit balance.
Common reasons why businesses operate at a loss
Many new businesses struggle with keeping a positive net profit. There are pesky things that could get in the way. At first, the losses may seem bearable. But without doing anything about it, it can lead to massive losses. Here are the most common reasons why many companies operate at a loss:
- They lost a major client.
- Competitors have taken over their customers.
- The manufacturing/operational cost has significantly increased and you’re unable to increase their prices.
- There’s a low demand for their products and services.
- Poor management.
Ways to boost your business and recover from potential losses
Reduce your expenses. Review your current spending and check if there are some things that can be reduced. If your production is still low, consider hiring part-time employees rather than full-time ones. Find ways to reduce your electricity consumption. For example, during low-peak hours, turn off the AC or heater. Turn off the lights and other appliances when not in use and make sure that your machines and equipment are all properly functioning. Buy ingredients or raw materials in bulk to avail of wholesale’s discount or try to negotiate better deals from your suppliers.
Increase your sales
The best way to recover from a negative profit balance is to increase your sales. There are many ways to do so, but basically, it falls under effective marketing. Together with your team, brainstorm on how you can increase sales of your products and services. Review your costing and check if it’s high time to increase your prices. Find more customers. Don’t settle with walk-in clients. In this highly competitive world of business, you have to be proactive with your approach. Make use of the social media to find more customers and make your product/service known. If you don’t have one yet, put up an online shop. It’s a powerful, less costly extension of your physical store.
Seek professional help
Majority of business failures happen due to poor management. It’s either the owners don’t have direct knowledge about how to operate their business or they are not too hands-on and simply let their employees manage the day-to-day operations. If you constantly struggle with many aspects of your business, from inventory management and accounting to training people, finding customers, and marketing your products or services, consider getting advice from professional business consultants.
Increase your cash reserves
Take note that it’s different when you’re expecting an invoice in the future, such as delayed payments from existing clients, to cover your loss. If this is the case, you’re not actually operating at a loss, but you’re merely having issues with your cash flow. If you think the emergency is only temporary, consider taking out a cash advance or personal loan to cover your bills until such time that you collect payments from your clients. You can also raise funds from your family, friends or relatives.
Conclusion
Every business, small or big, face different challenges along the way, such as operating at a loss. There are many possible reasons why companies experience this. It could be due to the loss of a major client, tight competition, reduced demand for their products and services, and inability to increase their prices despite the surge in operational costs. Fortunately, there are plenty of ways to recover from the losses. These include looking for ways to reduce your expenses (from the overhead to utility bills), increasing your sales and finding more customers, increasing your cash reserves, and when necessary, consulting a financial advisor to get a deeper understanding of the current state of your business and devising a plan to improve it.
