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. But if the losses are due to a decline in sales, then it’s time to review your business and, if necessary, get professional help.
You’re operating at a loss if you:
Do any of the above apply to you? Let’s look at ways you can remedy the situation.
The first step you need to take is work out if you’ve got any revenue coming in, in the near future. This could be in the form of a large account being paid, or if your business is a seasonal one, seeing your returns at the end of the season. If this is the case, then the issue you’re facing is a cash flow one. Talk to your bank or your accountant about the possibility of a short-term loan until this money comes in.
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:
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. This will improve your cash flow and you’ll start to see a profit, which means you’re no longer operating at a loss.
Some of the best ways of increasing sales are:
It’s also important to 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.
There are some things you can do to give yourself a life-line while waiting out the current drop in sales, such as:
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.