5 Causes For A Small Business Losing Money

 

1. Bad Accounting

To have any chance at success, you need to know your small business financial numbers. If you don’t, how can you know how much money is coming into and going out of your business?

When you run a business, there is no room for unorganized, inaccurate accounting.

If you are slow to log transactions, you won’t have a clear idea of how much money your business has. For example, if you buy a lot of supplies but don’t enter the transactions into your accounting books right away, your books will show that you have more money than you actually do. As a result, you might spend more, causing a negative cash flow for your small business.

2. Combined Bank Accounts

Whatever you do, do not use one bank account for both your personal and business banking. Open a separate business bank account. Even if you are a sole proprietor, you should consider having two different accounts.

When you and your business share an account, money can easily become muddled. How can you know what money belongs to you, and what money belongs to your business? When all the money is combined, you will mix it up.

Let’s say you only have one account. A personal emergency comes up that requires a lot of money. You withdraw that money from the bank account, but you use more money than what actually belonged to you. Some of the money belonged to your business. Now, your business has lost money because you didn’t separate your personal and business finances.

3. Poorly Priced Products

You need to find a middle ground when learning how to price a product. If you sell your products for too much or too little, your business will lose money.

If you set your prices too high, fewer customers will buy your products. People will view your products as unaffordable and will seek out cheaper options elsewhere.

If you set your prices too low, more customers will buy your products. Sure, a lot of people buying products is a good thing. But, the prices might be so low that you barely turn a profit. People might be willing to pay more than your ultra-low price.

It can be difficult to create prices for your products, but it’s not impossible. Conduct a market analysis to learn about the kind of customers you have. Study your competitors to find out what they charge for the same products. You can even ask customers and potential customers how much they would be willing to pay for your products.

4. Nonexistent Investing

At some point, your business won’t be able to grow without investing more money into it. Operations will stagnate. You need money to expand, offer more products, and market to new customers. The only way to gain more profit is by investing in your business. Without investing, your business will miss out on it’s true earning potential.

You have many options when financing a small business. You can invest your personal money, ask friends and family for help, or use a bank loan, among other options.

When you invest money in your business, use it wisely. Work on initiatives to make your business grow so you don’t waste invested money.

5. Nonexistent Online Presence

These days, almost everyone is online. So, if someone wants to find a new business to purchase from, where do you think they’ll search? That’s right: online.

If your business can’t be found online, you’re missing out on a lot of customers. That’s why small businesses need a website. Even if you don’t sell products online, a website can help people learn about your business. Your website can also help people find out how to contact you or find your physical location.

SOURCE:forbes.com