5 Ways That New Businesses Are Losing Money (And What You Can Do About It)
Small businesses can only survive if they are consistently generating a profit. However, most SMEs that start out are destined to fail without the right strategies in place to maintain a positive net profit.
It’s true – Fundera found that 20% of small businesses fail within their first year, and 50% fail within their 5th year. This is quite staggering and naturally, we wanted to figure out why.
The losses your business makes might creep in slowly and it might seem under control, but over time you realise they start to eat away at larger chunks of the business which can result in its failure. Therefore, it’s imperative that you identify why SMEs are losing out monetarily. The reasons might seem like common sense, but they’re incredibly easy to miss.
It’s important to identify why your business is losing money over time. You might find that it’s a quick fix, or that you need to implement changes over time. Regardless, the faster the issues are identified the easier you’ll be able to rectify them
Below are 5 ways your new business could lose money and what you can do about it:
You have a non-existent online presence
Almost everyone is online using a myriad of social platforms. When you hear someone talk about a brand name what’s the first thing you do?
Go on. Google it.
If your business can’t be traced online or on social platforms, then you’re missing out big on conversions. Even if your business doesn’t sell products online, you should still make a website for your small business. People still need to know what it is you do and how you do it. Your website can also help people find out how to contact you for new business or find your location. The latter is especially important, as you can claim your business on google to show customers, you’re a real, contactable business.
But don’t just stop at a website. Social media is absolutely where it’s at. You can show off your products and services at a more ‘human’ level and encourage customer interaction. An online presence in a nutshell will grant you the following:
• Increased accessibility for your customers
• New revenue streams (e.g. exclusive online products, PPC, Paid Social)
• A wider audience – you might find an older demographic displaying interest in your products
• An identity that can aid in building trust – if your company CSR is communicated thoroughly online then tech-savvy millennials will catch on to this
• A chance to feature in “near me” results – 1/3 of mobile searches are related to location-based searches.
You worry too much
It’s easy to say that worrying gets you nowhere, and in the case of businesses it certainly doesn’t. However, don’t mistake this for ignoring monetary issues – the longer they’re left the more prone you are to becoming bankrupt.
On the other hand, a little worry is good to keep you on your toes But you’ll want to make sure it’s not affecting your mental health and the ability to make important decisions.
There are simple ways you can combat your worries, some of which aren’t as hard to achieve as you might think:
• Analyse your income streams – can you scale up your business offering? Or scale down to offer more specialist services?
• Are there any unnecessary expenses you can cut (e.g. fruit basket deliveries every Monday)?
• Can you hire additional help through outsourcing sites like PeoplePerHour, as opposed to a full-time employee?
• Are your payments being chased as often as they need to be?
Once you’re able to answer the above you can begin putting together an action plan to combat these issues.
You’re massively undercharging customers
Businesses can really mess up when pricing their products. This is due to fear of overpricing or not being able to beat direct competitors. Unfortunately (and most importantly – obviously), selling products for too much or too little will greatly affect how much money your business will lose.
If your prices are too high without any reasonable justification (e.g. is it made of gold?) then very few people are going to invest in your products or service. On the flipside, having lots of people buy your products on the basis that it’s incredibly cheap is also a negative thing as it will barely give you any profit.
There are several ways you can go about conducting simple, quick yet effective market analysis:
• Have a purpose for your study – is it to understand customer needs and/or behaviours?
• Determine who your target customers are. Build buying personas to help you target them
• Gather data from credible sources such as YouGov or the Office of National Statistics
Market analysis is your sure-fire way to pricing your products/services correctly. Do you have something to offer that the current market doesn’t? Up the price. You could even go as far as conducting your own surveys to find out what your target customers are looking for. Whatever you decide to do – keep these takeaways in mind:
• Don’t be afraid to ask questions
o Use your existing relationships to get opinions, or join Facebook groups/forums and get a discussion going
• Calculate your hourly rate
o Businesses charge using various models, but if you find that charging by project is negatively affecting your ROI then you may want to switch to a price-per-hour model
•Get the language right in your business offering
o If you can’t communicate your product, even if it’s the most amazing thing on the planet, then you aren’t going to convince customers to buy it. The way you describe your offer must speak to the bottom-line result. One you achieve this; the price tag no longer becomes an issue.
You’re turning over staff far too frequently
Small businesses, specifically start-ups, get a bad rep for long working hours and lack of training. Funnily enough these are also reasons employees leave such companies and contribute to a high staff turnover.
If you’re unsure what your turnover rate is, simply divide your total number of employees by the ones that leave. So, if for example you have 50 employees and 10 leave in the same year – then your yearly staff turnover is 20%. Quite staggering. Not to mention costs for hiring and replacing staff can also burn a hole in your books.
Think you might be managing yourself and the business properly, but can’t figure our what’s causing people to leave? Here are several reasons to consider:
• Lack of growth opportunities or progression in their roles
• Overworking staff, leaving them demotivated and stressed
• Lack of feedback and recognition for employee efforts
• Micromanagement, leaving employees feeling untrustworthy and pressured
• Employing the wrong people for the wrong job
Staff turnover is something you don’t want to add to in your small business – here are some useful ways you can ensure turnover is kept to a minimum:
• Define the roles you’re hiring for down to a T
• Recognise efforts and reward accordingly
• Offer constructive criticism and feedback for employee growth
• Offer flexibility in working hours or styles to improve work/life balance
• Give employees a sense of purpose and meaning in their work by goal setting
If your business is not able to move quickly or operate in an organised manner, then you’ll naturally fail customer demand. Are there steps in your workflow that could be digitised to avoid unnecessary scanning/paper work? Are your internal teams in the loop of everything going on within the business?
Perhaps your processes are the reasons you or your staff aren’t following up on customer leads as quick as you should be.
There are ways you can combat inefficient workflow to help prevent your business from losing out on money, and sanity. Ironically, multitasking isn’t the best way to go about it:
• Focus on difficult tasks first
o Only focus on one or two tasks at a time so your brain (and your team) isn’t overloaded
• Increase and improve communication within your business
o If your team is unaware of goals and tasks, then they’re not going to work towards the things you need completing.
o Use tools like Slack, Asana or Trello to keep up the communication remotely and list all the tasks that need to be done
• Provide frequent training
o When your employees are trained up properly, they’ll feel more comfortable taking their own initiative instead of worrying about completing the jobs at hand. Even if this means retraining in certain areas, it can spark newfound confidence and put any worries to rest
• Leave work at work
o If you or your employees are constantly taking work home with them then it inspires a culture of restlessness. You might think that getting work done at home means less for tomorrow. But it robs down-time and increases exhaustion the next working day
• Hire a new staff member or two
o Or if you can’t afford this, as mentioned earlier, hire temporary help through freelance job proposal sites which allow you to pay per project for a fraction of the cost of hiring someone new.
Christina is a Copywriter for Face For Business – a telephone answering service offering first-class telephone handling solutions for your business.