While running a business, losses are fairly common. You lose a client; you make a loss. You run the wrong ads; you make a loss. You bought inefficient machinery; you again make a loss. But these losses are expected in your business plan and do not harm your business in the long run.
It’s just a minor setback, and I’m pretty sure if you’re reading this, then you know how to overcome the above losses. But unknown to business owners, there are a few hidden ways in which your business could be losing money which might have not been a part of your business plan.
And yes, these apply to EVERY business in the world.
Poorly Priced Products
Let’s start with the basics first. We all know that two things are most important in a business.
- A buyer, and
- A product
If we have both, we have a business or a sale, right!?
But most business owners forget the most important part of this sale transaction: the price.
To beat the competition in this sales race, business owners usually go for minimum pricing as their business pricing strategy.
It is extremely vital to get the pricing correct. Both the high and low ends of the price band will not work out for a business.
Let’s understand with the help of Gillette!
In the 2000s, Gillette dominated the U.S. razor blade market, holding a 60% share. However, in India, their presence was much smaller, with only a 22% market share. 
The primary obstacle was the pricing. Their Mach 3 razor, priced at 100 rupees, was way beyond the reach of many Indian consumers.
Recognising the need for a strategy shift, in October 2010, Gillette India launched its Gillette Guard, a much cheaper and better razor, at an affordable price of Rs. 15, with a refill of just Rs. 5.
The price barrier was shattered!!
This pricing strategy business plan paid off significantly, as Gillette’s market share in India soared to 60% within two years.
Moral of the story: Integrating pricing strategy into the initial stages of the product is highly important. Price isn’t merely a monetary value; it reflects consumer demand and perceived worth.
Understanding customer preferences and spending limits allows for creating products that meet market needs and achieve commercial success.
Late and Missing Payments
Have you ever felt like a part-time banker because you’re always waiting on payments? Late and missing payments can be a real thorn in your side. They disrupt your cash flow and can land you in a spot where you’re scrambling to cover your bills.
What to do?
- First up, play detective with your accounts payable and receivable. Make sure no payment has ghosted you.
- Get strict with your payment terms. Set a 30-day payment window and stick to it.
- How about a late fee? A gentle nudge for overdue payments might encourage promptness.
- Don’t forget to set reminders to chase up those late payments after 30 days.
If you play along with your payments too often, it might be time to give your billing and collection methods a makeover.
Outdated Technology
Every business needs some sort of technology to grow. Whether it will be for billing, payments, or operations. However, due to margin crunch, most business owners hesitate to invest in the existing technology.
Think about it this way: when a business sticks with old tech, it’s like trying to run a race with a heavy backpack. Take an outdated point of sale (POS) system, for instance. Imagine it’s a busy day, and a customer wants to pay with their eWallet, but your old POS just can’t accept it. Oops! That’s a sale gone.
Note: To keep up with technology, follow your customers’ lead. Upgrade to the technology they are using.
Poor Accounting
It’s quite typical for small businesses to manage their accounting tasks internally. Yet, these businesses often just go for the accountant offering the best deal, not considering their expertise or the added value they might provide.
But here’s the thing: shaky accounting can really hurt a business. It’s not just about crunching numbers. Whether we’re talking about managing expenses, sorting out taxes, handling invoices, or other financial aspects, it could seriously drain a small business’s resources if the accounting isn’t up to snuff.
For instance, imagine a local bakery that chose the cheapest accountant around. Initially, it seemed like a smart cost-saving move. But, because the accountant wasn’t very experienced, they missed some key tax deductions and mishandled the bakery’s expense tracking. End result?
The bakery ended up paying more in taxes and had a muddled view of its financial health, which made it tough to plan for the future. This situation shows how critical good accounting is – it’s not just about saving a few bucks upfront.
Lack of Proper Resource Management
It’s often said that small businesses, especially startups, have a tough time with long working hours and insufficient training. It’s ironic, though, because these are exactly why people often leave these companies, leading to high staff turnover.
Let’s break it down a bit.
How do you calculate your staff turnover rate?
It’s simple. Just divide the number of employees who left by your total number of employees.
For instance, if you have 50 employees and 10 leave within a year, your turnover rate is 20%.
That’s significant! And `don’t forget, constantly hiring and training new staff can really eat into your budget.
So, you might think you’re managing everything just fine but still scratching your head about why people are leaving. Here are a few things to ponder:
- Could your staff be overworked, leaving them stressed and demotivated?
- Are you giving enough feedback and appreciation for what they do?
- Watch out for micromanagement—it can make your team feel undervalued and under pressure.
- And it’s super important to ensure you’re hiring the right people for the right roles.
Now, high staff turnover is definitely something you want to avoid in your small business. Here’s how you can keep it to a minimum:
- Be super clear about the roles you’re hiring for.
- Don’t hold back on recognising and rewarding good work.
- Offer constructive feedback to help your employees grow.
- Flexibility is key – consider offering different working hours or styles to balance work and life.
- Help your team find meaning in their work by setting clear goals.
Let me give you a quick example: Imagine a small tech startup, “InnovateTech.” They were struggling with a 25% turnover rate. The team felt overworked and saw no clear career progression. So, the company decided to make some changes.
They started with clear job descriptions, ensuring everyone knew their role and how it contributed to the company’s goals. They also introduced flexible working hours and regular one-on-one meetings for feedback and recognition.
Guess what? Their turnover rate dropped to 10% in just a year, and employee satisfaction soared!
So, it’s all about finding that balance and ensuring your team feels valued, understood, and part of something meaningful.
- Want to know if there are more such ways your business could be losing money?
- Want to put mechanisms in place to make sure your business doesn’t lose out on this money?
- Need help with identification of necessary changes to systems and processes for optimal monthly reporting and decision making?
Look no further!
At Contetra, we work with Business Owners to help them transform data into actionable insights, set up a performance monitoring mechanism and build an ROI-based growth journey.
Set up a call with our solution experts to know more about how we can be a part of your growth journey – https://calendly.com/reachout-_g/30min?month=2023-06
