The term ‘loss’ is not one that is welcome in any business. Loss is when your expenditure exceeds your income, leading to a detrimental effect on cash flow and a complete lack of profit for you. As such, it’s generally not a good sign to see any form of loss in your operations and can signal a struggling business.
When your business is losing money, it goes without saying that it is in your best interest to eliminate it as soon as possible. By doing so, you will minimise the chance of debt and make recovery a less painless process, which in turn may ensure the survival of your enterprise.
In this guide, we are outlining the measures you should take to minimise loss across your operations until you can reverse it back to profit.
- Cut costs
- Be savvy with where you put money
- Expand carefully and considerately
- Follow your financial plan
- Identify risks ahead of time
- Have a contingency plan in place
If your company is experiencing losses, it means that the balance is not right between what you are spending (on your operations, staff, supplies and so on) and what you are receiving through sales and revenue. So, to reduce the impact, you need to address this and rebalance the two. This means cutting costs.
Undertake a thorough review of your cost base and consider what is necessary for your business currently. Are you paying for services you could survive without? Are you ordering supplies to create products that there isn’t enough demand for? Ask yourself these questions and identify any areas where costs could be reduced or even eliminated.
Other ways to trim your expenses include renegotiating contracts with providers, switching suppliers, being eco-friendlier and streamlining processes to make them more cost-effective. By reducing costs appropriately, you will make sure you aren’t spending more than you are earning, allowing your enterprise to break-even.
However, remember that cutting costs should still allow you to operate successfully, or you could risk getting into even hotter water, so review your costs sensibly and with maximum productivity in mind. You will also always have the option to re-introduce expenses to your company once you have gotten your finances in better order.
Be savvy with where you put money
While cutting costs will help you to limit losses, you don’t necessarily need to stop all spending to become more cost-effective. In some cases, it is about investing in the right processes and putting measures in place that streamline costs while enabling you to operate efficiently.
Ways to streamline your costs include outsourcing tasks to external agencies, utilising technological solutions, increasing internal security and adapting existing processes to improve productivity. While most of these will have an upfront cost, if they enhance your operations, they can offer great return on investment and protect you against future loss.
Similarly, it is crucial to examine where you are spending money – such as on staff members and suppliers – and make sure you are backing the right horses. By doing this, you will ensure you are getting the most for your money, with further helps to reduce loss.
Expand carefully and considerately
A common cause of losses in business is when expansion has taken place too soon. This could be when a firm invests in new staff, supplies, equipment or any other form of growth without the appropriate demand or strategy being in place to facilitate it. As a result, your overheads go up without the sales to counterbalance them.
It is therefore vital that enterprises only grow when the time is right. This time will be indicated by increasing demand, profit or market share. You should also make sure you have a watertight growth strategy in place to allow you to expand responsibly and successfully. By implementing such a plan, at the appropriate time, you will be able to grow without resulting losses.
Follow your financial plan
When you start a business, you should have a thought-out financial plan behind it. This plan should be re-evaluated regularly as your company and the wider world change.
The idea of having a financial plan means that you carefully determine the financial state of your business to allow you to keep track of how much you should be spending (and where) and how much income you expect. The plan should underpin everything you do.
If you see losses in your operations, it could be because you aren’t following your financial plan. Alternatively, it could mean that your plan isn’t fit for purpose. So, revisit the financials and determine where the differentiation is.
If the issue is that the plan isn’t being followed, revise your operations accordingly. This could mean taking stakeholders through the plan to make sure they are on board or adjusting processes to keep them running at the right cost.
If the issue is that the plan isn’t right, spend time analysing why it isn’t working. This could include going through your accounts and looking at other data such as sales, competitor research and market share. In some cases, it might be that an unexpected situation has derailed it, so remember to consider the broader context and focus on adjusting your plan to encompass it. By doing so, you will be able to tailor your plan to the actual state of your business and add appropriate measures to ensure its survival.
Identify risks ahead of time
Losses often come after your business has hit a road bump of some kind, such as falling sales, reduced industry demand or the rise of a competitor. By understanding the risks you are susceptible to and identifying the signs when you’re in danger, you may be able to take preventative measures to reduce loss.
Spot the risks before they take effect by undertaking frequent reviews of your operations, your accounts and other appropriate factors such as customer satisfaction, competitor research and market analysis. By monitoring this, you will have a greater comprehension of the world of your business and see red flags ahead of time. You will then be able to act early to mitigate it.
For example, suppose you are witnessing issues with working capital. In this case, you will be able to refer to cashflow management solutions to alleviate the pressure before it leads to worse problems, like credit score worsening through missed payments.
By understanding and tracking the risks to your business early on, you will be able to take control of the situation and keep your finances steady. This may allow you to avoid loss altogether and reduce it when it does happen.
Have a contingency plan in place
When establishing an enterprise, it is always worth thinking about the worst cases scenarios and building contingency plans. So, it is essential to have this in place even before your company has experienced any kind of loss.
An effective contingency plan should detail what actions you will take in situations where your business is struggling. These actions should aim to reverse the effects of any financial strain initially, as well as document how you will ‘get out’ of the situation if you cannot recover the losses. Make sure to devote time to creating contingencies that are carefully considered and cover the different risks your business may face. This plan should also be documented to share with key stakeholders and refer back to in the future.
If your company does experience losses, you should then implement the contingency plan in place – which should include measures to reduce the symptoms. By having the plan ready, you will be able to avoid the panic and act swiftly, which can stem the problem and minimise the effects.
If you are experiencing losses in your business, there are many financial solutions and practical tips to assist. Being proactive and identifying the appropriate recovery routes are fundamental in enabling you to minimise the losses and survive.
Our team of advisors have expertise working with a broad range of businesses in overcoming financial challenges, including turnaround situtations. Accordingly, we are able to offer bespoke advice to address your unique needs and reverse the economic decline.
Get in touch today to see how we can help.