Are your sales plummeting? Do you often turn to cost-cutting measures to pay your bills on time? There are many warning signs of a business in trouble. Not making a profit is often the first indicator that requires your concern. If your business is barely getting by, it's high time to consider making drastic changes.
How to Know if Your Business Is Not Making Money
Believe it or not, you can see customers buying your products, and you’ll still have zero profit. To understand why it’s important to have a quick review of some basic accounting principles. Specifically, there are two factors involved in determining your company’s profit. These are your revenue and expenses.
Revenue refers to the money you gained in your business operation during a certain period. These are the total sales of the products or services you have sold under your business. Meanwhile, your expenses cover all the costs involved in running your business during that same period. These include the cost of creating your products, your employees' salaries, your utility bills at work, your office rent, etc.
The formula is to subtract your business expenses from your revenue (Revenue — Expenses = Profit). The goal is to have a high profit. To achieve this, your revenue should be much higher than your business expenses. Naturally, if your revenue and expenses are almost the same, you’ll likely have zero or negative profit. Such results indicate your business is not making money.
What to do if your business is not making a profit
There are many strategies you can explore in case your business is in trouble. Below are your best choices.
1. Increase your contribution margin
Different products cost businesses different expenses. A company that sells shirts, for example, must secure different materials to generate their products. These typically include fabric, threads, inks, etc. When you add up all of these variable costs and subtract the sum from the shirt sales, the leftover is what you call the contribution margin. It is often computed on a gross or per-unit basis.
As discussed earlier, you'll need to secure that your revenue is higher than your business expenses to score a high profit. Accordingly, maintaining a positive contribution margin will help you achieve that goal. Since you'll know how much your products cost you, you'll know how much you should demand from your customers in return.
Aside from knowing the proper prices for your products and services, analyzing the contribution margin will also help get a sense of which product or service is profitable and which is not. You'll get to identify which is expensive to maintain and whether the same yields a positive contribution margin.
2. Find more finance options
Getting yourself in debt while your sales are plummeting might seem absurd, but this bold move will benefit you in the long run. Logically, a failing business demands immediate recovery plans. Likewise, turning such plans into reality requires access to sufficient funding.
There are different financing options that a failing business can explore. The most common alternatives are business credit cards and bank loans. Others also turn to venture capitalists, while some ask for temporary support from family and friends.
Once you secure sufficient funding, you can start your actions for recovery. Your priorities should include upgrading your commercial space to attract more customers and investing in better marketing strategies to improve brand awareness.
3. Sell your business
You'll never run out of strategies to save your business from impending doom. But if the passion's gone and the troubles are too much, the best alternative is to put your business on sale. While this might sound like you're waving the white flag, the move is actually a smart strategy that'll help you recover and move on to another market.
Many investors are out looking for available businesses that they can buy. Those who don't want to start from scratch and take advantage of an already established brand are especially interested in buying an existing business like yours. Keep in mind that you'll need to prepare your business first. Tie up loose ends and hire a professional business broker. The better the shape of your company is, the more buyers you'll attract that are more than willing to pay you a hefty price.
Running a business isn't for the fainthearted. If you notice your profit sliding down, it's time to take some bold moves. Whether you stay or move on is up to you. In the end, the goal is to make sure that you'll get compensated for all your time, money, and effort.