Running a business comes with many challenges, from developing new products or services to attracting and keeping customers. Yet, generating a profit is often the biggest challenge.
If your business is experiencing negative cash flow, know that you’re not alone. Growing companies often operate at a loss. Between the current financial climate and things like rising inflation, it’s no surprise if some business owners feel the squeeze.
Losing money doesn’t signal the end of your business. You just need to slow down & reassess your business operations. Negative cash flow creates stress, which often leads business owners to make impulsive decisions. The best thing that you can do for yourself is to keep a cool head.
Remain calm. Avoid making any major changes to your business without taking the time to think through all the details. In the following post, we’ll walk you through several strategies for turning things around and improving your profitability.
Review Your Business Revenue and Expenses
You should first take a good look at how much money is coming in compared to how much you spend each month. Many small businesses operate with an expense percentage of 90%, which means that 90% of their revenue goes to expenses and just 10% is left for profit.
Small businesses with high overhead, such as restaurants and retail stores, tend to have the highest expenses compared to profits. Accountants, attorneys, and real estate agents often have fewer recurring expenses.
If you’re losing money, your revenue is exceeding your expenses. Create a complete list of your monthly expenses followed by a list of your average revenue. Seeing everything written or typed out provides a big picture view of your business finances. You can quickly see your biggest expenses and most profitable revenue streams.
Improve Your Business Accounting Practices
Reviewing your finances may help you uncover accounting mistakes or bad practices. 82% of small businesses fail due to poor cash flow management. Here are a few tips for improving your accounting:
Most small businesses also lack the funds to hire a dedicated accountant or bookkeeper. It’s also common for business owners to still rely on paper bookkeeping, which increases the risk of errors. If you can’t afford a bookkeeper, use an accounting program, such as QuickBooks. Track every expense and invoice.
Using a cloud-based program makes it even easier to track everything. You can update your records from any location. Many programs also link directly with your bank accounts. After setting up cloud-based accounting software, digitize your records. Scan receipts using a scanner or the camera on your phone. Digitizing your records saves time if you need to audit your books or search for specific receipts.
According to the National Federation of Independent Businesses (NFIB), you should also balance your sheets at least once per month. Reconciling accounts receivable and accounts payable frequently allows you to spend less time on accounting tasks.
Use separate bank accounts for your personal life and business. Many entrepreneurs and new small business owners continue using their personal accounts, which makes it difficult to separate personal and business expenses.
Identify Potential Areas of Waste
Some expenses are difficult to cut. You need to cover payroll, rent, and taxes. However, the following business expenses are common sources of waste:
Try cutting back on paper products, which account for 70% of the total waste in the average office. Instead of printing reports and in-office memos, go entirely paperless. You could also cut back on office supplies and equipment wherever possible.
Go through every item that your business uses and ask yourself whether it’s critical to the success of your operations. Stop buying anything that isn’t essential. You may also try selling some of your existing supplies, furniture, or equipment.
Cut Non-Vital Labor to Reduce Monthly Expenses
If you’re seriously at risk of going under, cutting back on paper products and office supplies may not save your business. You may need to make some hard decisions and reduce your labor. Payroll is often the biggest expense for small businesses.
When reducing labor, it’s often a good idea to start with contractors. Retaining your employees shows loyalty and trust, which should be reciprocated. Compared to freelancers, your employees are more likely to put in the extra work needed to help turn your business around.
You should also be prepared to handle more tasks yourself. Giving yourself more responsibilities may make it easier to reduce labor without decreasing the efficiency of your business.
Adjust the Prices of Your Products or Services
If you set prices too high, fewer people will buy your products. However, setting your prices too low can be just as bad for your business. Underpricing may create the impression that you’re offering an inferior product.
While many customers simply want the cheapest product, the average person wants the best value for their money. If you give people three different price points, most people will choose the middle option. Instead of using cheap pricing, use accurate pricing.
Underselling yourself limits your profits. Make sure that you cover your expenses when pricing a product while adding an attractive profit margin.
10% is considered a healthy profit margin for the average product. However, margins tend to vary from industry to industry. If you’re not sure what to charge, check out your competition. See what others charge for comparable products and set your prices accordingly.
Streamline Your Selection of Things You Offer
Many small business owners make the mistake of thinking that customers want a large selection. Giving customers too many choices can increase the difficulty of the decision-making process, resulting in fewer sales.
Streamlining your selection also reduces expenses and allows your team to focus on the best-selling products. Stop spending money developing products that people don’t buy. Review your sales data to identify your top products or services.
You should also look at the costs of producing or supporting each item. Start removing products that regularly underperform. Don’t worry about whether it’s the winning idea that will pull you out of stagnation—just take action, and it doesn’t even have to be dramatic.
Grow Your Online Presence to Attract More Customers
After tweaking your prices and product lineup, use online marketing to attract customers. Start with free marketing strategies, such as social media marketing and email marketing. Use social media marketing to grow your online presence and connect with a larger customer base.
Common social media marketing strategies for small businesses include posting about upcoming events, offering discounts online, and sharing helpful, curated content. Social media is also a useful source for reputation management. Respond to customers on social media platforms. You can also pay attention to what people say about your business on Facebook, Twitter, and Instagram to get a better sense of your customer’s needs.
Email marketing is useful for retaining existing customers. Encourage customers to sign up for an email newsletter. Send weekly promotions and updates to keep customers interested in what you have to offer. Along with social media marketing and email marketing, you may try using pay-per-click (PPC) advertising. Keep in mind that PPC ads cost money and you don’t currently have a lot to spare.
If you decide to use PPC advertising, start with a small campaign focused on a single product or service. Use tools to monitor your campaign and tweak your settings to get better results. For example, use A/B split testing to try two versions of an ad to see which one works better.
Deliver the Best Customer Service Possible
Focusing on customer service is a tried-and-true method for generating more sales. Delivering the best service possible keeps customers coming back and spending more. If you want to make your business more profitable, you need to treat your existing customers well. High customer retention rates help you maintain stable revenue each month, which gives you something to grow.
So, how do you deliver better customer service? Pay more attention to online feedback, including Google reviews and social media posts. Set alerts for new comments and respond as soon as possible. Thank customers for their response, whether they leave a negative or positive comment. Try to resolve customer complaints swiftly, as you may turn a negative review into a positive one.
If your business frequently takes customer calls, consider recording the conservations and analyzing the performance of your customer service department. Even a small improvement in the quality of your customer service department may help you keep a few more customers.
Create a 90-Day Business Plan to Grow Your Capital
Paying attention to your monthly expenses and revenue is essential. However, focusing solely on your month-to-month finances may keep you from growing your business and becoming more profitable.
Create a 90-day business plan that includes clear objectives for increasing your working capital. You should attempt to save money at least every quarter, even if you continue to have an occasional month with a negative cash flow.
Using a 90-day timeframe also gives your changes time to work or fail. For example, you cannot expect a new online marketing campaign to turn your business around overnight. Every 90 days, reassess your expenses and revenue to determine what is working and what you need to change.
Downsize Your Business to Minimize Expenses
If you continue to fall further into the hole after using the strategies discussed, you may need to start downsizing your business. Depending on the size of your business, downsizing may involve renting a smaller space or closing business locations. If you operate out of multiple locations in a region, you could try consolidating your operations to a single office to save money.
If downsizing your office space isn’t an option, you could try renegotiating the terms of your lease. For example, a property owner may accept more favorable terms if you sign a longer lease.
You may also consider downsizing departments within your business. For example, if you’re struggling to make a profit, you may not need a dedicated accounting department, sales department, or marketing department.
Avoid Taking on More Debt to Save Your Business
As a final tip, you should never throw money on a sinking ship. Using a business loan or personal loan to save your business may only provide temporary relief without addressing the cause of the problem. Instead of trying to use more of your own money, you could try to find private investors. Angel investors and venture capitalists may be willing to invest money for a share of your business.
You can search for investors through online investment networks and local business associations. Obtaining money from investors may force you to give up some ownership of your business, but it can also inject your business with much-needed capital.
Cutting Expenses, Increasing Revenue
If your business is losing money, you need to limit your expenses and increase your revenue, which is easier said than done. To make your business more profitable, review your finances to determine where the money is going.
You could also start using cloud-based accounting software to improve your bookkeeping practices. Accounting software helps you track your expenses, which also makes it easier to identify waste. Reducing non-essential labor can cut your expenses further. However, you should avoid letting go of your most loyal employees. Start by cutting contractors and outsourced jobs.
Along with cutting expenses, you need to increase revenue, which involves setting your prices properly. The biggest mistake you can make is underpricing your products. Setting the price too low creates the impression of a lower-quality product. You may also want to limit your selection of products to focus on the best sellers. Limiting your selection of products reduces expenses and increases the overall efficiency of your business.
After setting new prices and cutting your product list, increase your online marketing. Attract more customers using social media marketing, email marketing, and PPC ads. Ensure that you deliver superior customer service and manage your online reputation to keep more customers.
Continue to monitor your finances and set 90-day objectives to grow your capital. If these steps don’t work, downsize your business or search for an investor. Whatever you do, don’t keep using your personal funds to fuel an unprofitable business.
Stephanie is the Marketing Director at Talkroute and has been featured in Forbes, Inc, and Entrepreneur as a leading authority on business and telecommunications.
Stephanie is also the chief editor and contributing author for the Talkroute blog helping more than 100k entrepreneurs to start, run, and grow their businesses.