Why Small Businesses Lose Money...

October 24, 2017



Not Understanding the Financials-If you are a small business owner, understanding the financial reports is one of the most important things you can do.  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?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. Also, accurately recording your transactions is important. Small errors like mixing up numbers or recording items in the wrong spot can devastate your business. You can avoid these errors by regularly closing and reconciling your books, conducting internal audits, and using a professional accountant to keep your business records.

One Customer Having 80% of Your Business-One customer should have more than 20% of your business.  If a customer has more than 20% of your business, and the customer goes out of business or if your small business loses that customer, you could put your entire business at risk.  Always following the 80/20 rule in business. 

The Pareto Principle, or “80/20 Rule” as it is frequently called today, is an incredible tool for growing your business. For instance, if you can figure out which 20% of your time produces 80% of your business’ results, you can spend more time on those activities and less time on others. Likewise, by identifying the characteristics of the top 20% of your customers (who represent 80% of your sales), you can find more customers like them

and dramatically grow your sales and profits.


Having Poorly Price 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.


Not Having A Mentor or Coach-Most small business owners underestimate the power of having a mentor or a coach when it comes to business.  The best in the business have mentors and coaches and have gone on to grow their businesses 10x as much and as fast.  Mentors and coaches have been where your trying to go, and can get you their with much more clarity then doing it on your own.  Hiring a coach should be as important as hiring an operations manager or an accountant.


Not Having Funding-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.






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