Not Making Profit? Here Are Some Reasons Your Business Is Losing Money

Business Profit

Small business owners aim for a healthy, consistent profit. As a small business owner, you ‘think’ (this is a faulty mindset and will ultimately lead the business to its doom. Successful businesses are known to be well structured) that if you want your doors to stay open, you will have to have your hand on everything. You wear a million hats at any given time, you work harder than more than half of your staff combined, and you know what departments to keep a close eye on so you can save money.

However, maintaining a healthy profit line can be troublesome. Certain things can be eating your profits away without you even noticing it. It could start off slow but it can quickly turn into an avalanche of problems that will inevitably lead to your business losing money.

Why Is Your Business Losing Money?

Finding the underlying cause of your financial problems can help you to quickly and hopefully nip it in the bud and have a turnaround for good.

Here are five likely reasons your business may be losing money:

1. Poor Accounting

If your accounting system is cluttered and disorganized, there is no way you can have a clear idea of what your financial numbers are. Instead, you are left wondering and guessing as to how much money is coming in and out of your small business. Amongst so many reasons why your accounts could be causing you issues, one of them is improper records. It can be difficult to have a clear idea of your business’s money situation if you log transactions after the fact or you overlook a transaction completely. Think of it like this, if you buy supplies for your company but you didn’t enter the transaction right away, your books will indicate that you have more money than is available. As a result, you could spend extra money and cause a negative cash flow.

You must record your transactions accurately and in a timely manner. Just a small numerical mix up could jeopardize everything you have worked so hard to build.

THE SOLUTION: On a regular basis, close and reconcile your books, host an internal audit and work closely with an accountant.

2. Poor Communication from Management

Studies show that small businesses with poor communication are mindlessly burning through cash. Effective communication is not only a great trait of a successful business, it is one of the key drivers of profits. An organization’s external and internal messages must get through to their target audiences or risk expensive delays, mistakes and poor customer service. Do not think of communication as a nice thing to have. Think of it as your primary resource for making money.

THE SOLUTION: Implement a stable communication process between employee and employer. From the interview process, good communication should be practiced on a regular basis. Carefully and precisely writing things out (like procedures and protocols), listen actively, ask for feedback, celebrate achievements, all of this will improve your communications at every level.

Using an employee management software can make this communication process a breeze. With digital software, you can always be where your employees are as more than likely everyone has a mobile phone. Before choosing a management software service, consider your employees location, its ease of use, how relevant it is to your business size, and the cost. Once you find the right solution, you can create an ongoing dialogue that helps build a community within the company.

3. Poor Customer Service

A recent (2017) literature review by Babandi Ibrahim Gumel titled “Critical Challenges Facing Small Business Enterprises in Nigeria”, Babandi revealed that most small businesses fail within the first five years notwithstanding the agencies established by Nigerian Government to support the sector. Most of the failure is due to numerous challenges facing the sector one of which is lack of customer satisfaction in Africa and this is killing many entrepreneurs, especially in Nigeria. A research study found that large and small businesses lose some 17 billion annually attributable to poor customer service. Here are some of the problems that may be happening at your business, according to the data:

  • Your customers do not feel appreciated.
  • Poor attention to detail.
  • They cannot easily find the right person that will provide them with the answers they seek.
  • Some customers face rude and unhelpful employees.
  • Long response time.
  • Failed promises/expectations
  • They are often passed around to other employees without definitive answers.

It is important to note that if the customer experience is poor it will likely be reflected in online and word of mouth reviews that future customers will read and hear. We know the power of a bad review and its effect on a business.

THE SOLUTION: Hire and train your employees to always provide the very best customer service possible. It will not hurt to ask satisfied and happy customers to share their positive experiences online and whenever the need arises. 

Customer service
4. Poor (Or Insufficient) Online Presence

It is 2019 and nearly everything is digital. You are probably reading this on your mobile phone or desktop, just like everyone else. So reach your customers that same way. If your customers cannot find you online, you are missing out on a ton of business.

What if your business structure has little or nothing to do with the internet? It does not matter, a website about your business can help customers learn who you are. As we always say, a website is like a virtual office and should be taken as seriously as a physical office. However, don’t stop there. Create a strong social media presence so that you can interact with customers on a regular basis. 

THE SOLUTION: Well, even though we may sound like a broken record: create an online presence! Make some noise. Build new or enhance your existing website and create a strong social media presence and engage your customers.

5. High Employee Turnover

Employee turnover is something all companies face, when an employee leaves the company and has to be replaced. However, turnover can cost you big time – in fact, studies have found that turnover can cost you twice an employee’s salary to find and hire a replacement.

THE SOLUTION: Find out which employees are leaving because if it is your top performers, you can expect productivity and profit to take a hit. Ask yourself why employees are leaving and make the necessary changes to avoid more exits. If new hires are leaving during on-boarding or in less than 9 months, you know there is likely a problem with your recruitment and on-boarding process so that is where changes need to be made and fast. Include exit interviews so you can get to the bottom of why your staff is walking out.

Once you understand why your small business is losing money, you can begin to find the right solutions and fix the issue before too much dough is lost.

6. High Operational Cost

Operating costs are expenses related to the daily running and management of a business. They include things like:

  • Labor costs, such as payroll
  • Employee health insurance, pensions, and other benefits
  • Sales commissions
  • Depreciation
  • Advertising
  • Amortization
  • Maintenance costs
  • Running cost (water, electricity, stationery, mobility, internet, etc)

Components of these costs are needed to successfully run a business. However, if not constantly checked (audited), the business may run aground. Knowing how to measure operating costs is important because it allows you to improve your bottom line. If you are a for-profit business, reducing operating costs will have a direct impact on your profitability.

THE SOLUTION: When you are faced with these costs and you get the chance to examine and assess them in detail, you have to, by necessity find ways and means to keep them at a minimal level and evaluate the true effectiveness of how much you will spend to keep the business running.

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