It’s great being the boss but running your own business can be punishing. Ultimately it’s down to you alone to make the numbers add up, turn a profit and pay your staff.
When you’ve been breaking your back working evenings and weekends and you’re endlessly in the red, it’s stressful and dispiriting.
So why is your business losing money? Most of the time it’s due to a few key issues.
Inventory in chaos
If you’ve been running your business on the fly without taking the time to take stock, you’re probably in disarray. A hit product can often result in a backlog of orders which can produce a glut of stock, as impatient customers have gone elsewhere. This leaves you with unsold and increasingly obsolescent stock, gathering dust in your warehouse and doing nothing but destroying your profits.
Drowning in paperwork
Piles of bills, proposals and copies of inquiries, receipts strewn around, figures jotted down here and there: if this is your office, then no wonder you’re in financial disorder. No amount of filing and filing cabinets will give you the agility that your business needs to be efficient.
Your invoicing is disorganised
Invoices are literally cash, or pieces of paper that are supposed to transform into cash. Failure to send them out on time (or at all), and failure to chase them up, simply means the money will never appear. You need a proper, well-organised system where invoices go out on time, reminders are sent and then followed up by arrears notices.
Not managing debtors properly
Give anyone an inch and they’ll take a mile. This is never truer than with your debtors, who in fairness are probably facing their own non-payment issues from their debtors. You need to manage your debtors tightly, setting clear, short payment terms and having a definite plan of action, or else you’re prone to losing money. 60% of invoices in Australia are settled beyond the standard 30-day payment period, according to Dun & Bradstreet. You should be keeping careful records of problem payers, and consider reducing their payment period.
We’re not machines, and most of us aren’t suited to endless data entry. Our eyes glaze over and we make errors. Many people swap digits around by accident, which is catastrophic if you then end up sending money to the wrong bank account or bill for the wrong amount. Even spread sheets won’t help if you’ve set up formulae incorrectly.
Not managing your costs
Little things add up to a lot. Wages are a key source of budget blowout if you’re overstaffed. Rent, office supplies, utility bills: the tighter you can keep everything, the less you’ll waste. According to ASIC, 41% of companies failed in 2012-13 due to inadequate cash flow or high cash use. Not keeping proper accounts of what you’re spending, and what bills are due, can be devastating. Having to take out an emergency loan to pay your bills is a short-track to disaster.
Not setting a budget
Do you actually have a budget for your business that you regularly revise and amend? If not, it’s no wonder that your haemorrhaging cash. Every project or goal needs a proper budget to prevent overspending. As well as keeping you organised, they’ll also help with future projections.
You may look at this list and find yourself thinking that a sharp accountant or a dynamo executive assistant could sort a lot of it out. But how much is that going to cost you? You need an affordable way to get back in the black, not an expensive hire that’s going to drive you further towards insolvency.
Professional accounting software is your saviour here. It can organise and automate so many of these processes for you, as well as link them together. Invoicing from the initial billing to chasing, tracking and future management of customers all integrates into one seamless process.
Make your data work for you. Forget multiple entries and duplicating your own labour many times, let technology ease the burden. It will cross-reference your sales with your stock, allowing you to see at any moment what your stock levels are. It will chase up bills and pursue your debtors. It will help you set and stick to budgets. It puts you back in the driving seat with a clear picture of where you are, so you can see where you’re going.
If you’d like more of a detailed insight into some of the manageable, cost-effective steps you can take to resolve key problems when it comes to accounting and financial management for your business, download our free e-book below.