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Is your business operating at a loss?


What’s meant by ‘operating at a loss’?

In a nutshell, operating at a loss simply means you’re spending more money than you’re making. And while it’s not uncommon, especially for new businesses, it’s still not an ideal situation and one that shouldn’t be allowed to continue in the long term. Otherwise, eventually you’ll run out of cash reserves and be out of business.

So the first thing you need to identify is why you’re operating at a loss. If it’s because you’re still in the start-up phase, then you don’t need to worry too much as long as you’ve got enough cash to meet your costs and fund the loss. But if the losses are due to a decline in sales or a negative change in margins, then it’s time to review your business and, if necessary, get professional help.

What you can do

The first step you need to take is work out if you’ve got any revenue coming in, in the near future such as a large account being paid. If this is the case, then the issue you’re facing is a cash flow one.

Reduce costs

One of the best and most effective ways of improving your cash flow so that there’s more money in your business is to find ways to reduce costs. All it takes is a bit of creative thinking. For instance, you could lower your staff costs, review marketing / advertising initiatives, savings with employee benefits, and reduction of overhead Review line by line of your expenses to find areas to trim expenses.

Increase sales

Once you’ve looked at all the ways you can reduce your spending, it’s time to get more money coming into the business and the best way to do this is to find ways to increase your sales. Can you ask your existing customer base for referrals, are you reaching your target audience through your advertising or is it time to change to things up to reach a new group. Review your debtors. Are you owed money? If so, start chasing them up. It’s no good selling to customers who aren’t paying, so you might even look at ditching habitually late or non-paying customers. Including a 2% net X days is a great way to increase revenue and offset your interest costs when you are in essence financing your customers. Charge them interest for not paying you. You should notice a quicker turnaround in receipt of their payments.

Consider some short term solutions, such as contributing some of your savings to your business account, borrowing from friends or family, using crowd funding to raise capital, seeking out investors and selling any un-used stock or assets.

In the end, turning your business around from operating at a loss to showing a profit comes down to common sense and not having your head in the sand. It’s important to review your business practices carefully and honestly so that you can pinpoint where you’re going wrong. Once you’ve identified why you’re operating at a loss, putting a plan in place to deal with it, and sticking to it, is the best way to turn things around.

Help and resources

Contact one of our small business advisors to for advice improving cash flow
Review our range of cash management solutions to help keep your finances on track

Meridian Credit Union communications are intended for informational purposes only and do not constitute financial advice or an opinion on any issue. We would be pleased to provide additional details or advice about specific situations if desired.

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