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Every business has ups and downs. Sometimes a business is making money, and sometimes it is running at a loss. It is not uncommon for the latter to happen, especially for new businesses that are yet to find a consistent customer base. However, when a business keeps losing money for a long time, it is up to the business owner or director to start thinking about what they can do. They need to make some changes or face the fact that they will have to close the business. Here are a few things you can do to turn things around if your business is constantly running at a loss.
When to Take Action
Before we look at the actions you can take, it is important to first understand the circumstances that would trigger these actions. The first is the business not having enough money to pay its bills. Apart from internal bills like wages and keeping the lights on, businesses must be able to pay external bills such as money owed to their suppliers.
The second trigger is the business having a negative bank balance with no way of making it positive again. Lastly, it is not hitting sales targets. If you plan on selling 500 shirts a month and only sell 200, you will be operating below your sales volume and likely at a loss. So, what can you do?
Streamline Your Cash Flow
Cash flow is a measure of the amount of money coming into and out of your business. If you have more money coming in than going out, you are operating at a profit and operating at a loss if the opposite is true.
There are some instances where you operate without cash but without making a loss. What this means is that you constantly have a negative cash balance while also waiting for checks to clear and payments to come in.
Become an Insider
You operate at a negative cash flow for the time being until you are green again. Operating like this can have serious effects such as affecting your ability to invest or hire new talent. If you are consistently operating like this, you need to streamline your cash flow so you always have some money in the bank even when waiting for additional funds or for cheques to clear.
The second thing to do is to focus on the customers who make you the most money. These are the percentage of customers or clients who make you more than 80% of your revenue. These may be individual customers, businesses, or a specific customer demographic. You should then do enough research to find out what products they will be interested in.
Even though you no longer have much money to spend you can craft targeted marketing campaigns to bring them back to the business so you increase sales. Once you have some previous customers buying again you should put in place strategies to acquire new customers.
These new customers will bring in the infusion of cash you need to settle your negative balances and be profitable again.
When trying to minimise losses, cutting costs should be at the top of the agenda. These measures ensure leaner spending and more efficient cash flows. There are many ways to cut costs, but many of them will revolve around your employees, assets ownership and storage, production, and shipping.
Increase Cash Reserves
Boosting your cash reserves can give you the cash you need to invest in strategies that will make your business profitable again. Selling stocks and assets can be a great way to boost cash reserves and help it survive the current crisis.
If you can, you can also get a business loan to support the business. One thing to understand is that if you ever think about selling or dissolving your business, your lenders will have to be paid first before anything happens.
If you can get enough money to get profitable again, you might be able to save your business.
Talk to a Financial Advisor
The cause of your losses and lack of profitability is directly related to your finances. It is helpful to talk to a financial advisor to help you turn things around. The first thing they will do is help to identify areas where you are losing money so you can rectify these issues. They will then talk to you about restructuring the business so you get the most you can out of the money you are putting in it. Lastly, they will also talk to you about where to put money so that you realise the most growth, start bringing in some money, and become profitable again.
This is the most difficult option for many business owners because they may have built the business over a long period and have lots of history in and with it. However, there comes a time when business losses pile up so high that there is nothing you can do but let the business go through dissolution.
Dissolution, also known as a strike off, is a voluntary process where a business director decides to dissolve the business. Because it is a legal process, you have to file a DS01 form with the Companies House and, if accepted, the business is dissolved and ceases to exist.
Even though the usual strike off is a voluntary process, a company can be forcibly struck off if the Companies House has a reason to believe that the business is non-compliant or is no longer trading. The rule you are most likely to break when a business is constantly making losses is failing to file your accounts on time and not trading because you do not have the capital to continue doing so.
In these circumstances, a compulsory strike off is initiated and the director would do well to let the process finish because this is an easy way to dissolve the business without doing anything on their part.
No one wants a business that runs at a loss because the effort you put into it is often wasted. However, it is possible to turn things around by being strategic and following the tips outlined above. Dissolution is the last resort, but it is an option that every business owner has.
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