November 30, 2022

Y M L P-211

Business – Once You

What to do if your business is operating at a loss?

Operating at a loss? Use these tips to get your small business back on feet  and generate profit. | by Helen Sheplyakova | HireRush | Medium

Businesses tend to be cyclical. There is a boom, and then there is a bust. Sometimes real estate and ancillary businesses are booming, and on other times, the auto and ancillaries are rising. Every business has challenges, credit cycles, upturns, and downturns. It is usually difficult to predict the fate of an industry due to which entrepreneurs, small and medium enterprise owners are constantly figuring out their next move. While it is good to diversify and shield the impact of a downturn, not all businesses have the resources to do so and inadvertently get into the loop. Whatever be the case, the reality is to remedy the functions and get the business up and running. 

A business loan can help with short-term liquidity, it can reduce financial stress and give breathing space to re-align priorities, but it is just one of the measures. Entrepreneurs don’t take no for an answer, they will find ways to run the business and turn the tide back in their favor. 

Here are some ways by which a business can wane the impact and possibly reduce losses:

  1. Sale: Selling at a discount is beneficial. It helps a business attract buyers, clear out inventories and generate liquidity. The plan is that the revenue (product sold multiplied by price) exceeds the revenue the company would have made without having a sale. If this strategy works out, a business does not need to take a business loan.
  2. Costs: During financial stress, a company should consider cutting down on unnecessary expenses, which will help it preserve liquidity. It should aim to become leaner and more efficient. Strategies like six-sigma (just-in-time), inventory reductions through discounts (sale), and automation with technology can help reduce various costs and improve cashflows.
  3. Pareto’s principle: Nearly 80% of business comes from 20% of customers for most businesses. Identifying the top buyers and profit centers is crucial. Once the company knows this, it can focus on profitable customers and gradually reduce its dependence on non-profitable ones. 
  4. Loss can be good: When a company files tax, if it makes a loss for the fiscal year, it need not pay any tax. Therefore, booking losses can help a company save on tax payments.
  5. Root cause analysis: Asking ‘why’ is critical. The more you ask, the more answers you get, bringing clarity. 
  • Why did the sales fall? 
  • Why are costs so high? 
  • Why do I require this process/person? 
  • Why do I have the cash crunch problem?
  1. Look for credit: Business loans are a great source of short-term (or long-term, as required) liquidity. Especially when a business is incurring losses, it is essential to keep it running and sail through the bad phase. While business loan eligibility is crucial to receive credit, most businesses can easily apply and get these loans.

    The loans indeed have to be repaid, and if the company is making losses, it isn’t easy to envision when the company will turn profitable. The good news is that the business loan interest rates are the lowest, and entrepreneurs can use them best. Business loan EMI calculators can help you picture the repayment plans and work out the best case scenarios as needed. 

A good analysis of the business SWOT, root cause, and deeper understanding of priorities is critical. With meticulous research, it will be only a matter of time the business comes out of making losses and is up and running.