Losing money each week is a sure-fire way to eventually go out of business completely. Use our quick guide to get your business back on track, whether you are a retailer, tradie, hairdresser or other small business owner fighting the good fight for business survival.
Step 1: Diagnose the problem
Check your cash flow and profit and loss statements (possibly with your accountant’s help) to determine where revenues are declining or expenses are increasing. If you have not been keeping good financial records, chances are this lack of attention to detail is a major contributor to your struggles, and you will need to sort out your records before you can even think about getting back to profitability.
Tetsu Watanabe, managing director of NAC Australia Consultancy, says accurate diligent bookkeeping is essential, while small businesses should also keep their own benchmarks and check them monthly, like gross profit margin, number of customer complaints, percentage of wages or rent over sales.
“Historical accounting and other information can be a great analytical tool for small businesses, particularly during a difficult period, because numbers are by nature objective and eliminate some of the guess work which small business owners tend to rely on,” he says.
Step 2: Make a plan
Once you know the root of the issue, you will need a plan to rectify it, including setting short, medium and long-term goals and objectives. In the short term, you may need to cut costs radically to get back to break even, while medium-term targets may require creating low-cost marketing strategies or seeking new growth areas.
Once you’ve bought yourself some time and mapped out a method of getting back to profitability, it will be time to reassess your situation and your long-term business goals.
Step 3: Cut costs
Cutting costs will help get expenses under control, and there should be plenty of low-hanging fruit. A simple one is saving on energy, such as by ensuring computers and other equipment are switched off at the wall when not in use, and using energy-efficient lighting.
Another measure is comparing your utilities bills which can be easily done with an online calculator to find the lowest cost provider, or buying petrol at the times and places it is cheapest.
You should be able to negotiate on prices for just about every expense your business has. After all, regular vendors will usually accept a lower price if it means continuing the business relationship.
By reviewing all your business costs and identifying savings, you will be well on the way to improving profitability.
Step 4: Grow with some cost-effective marketing
Once you have cut expenses and started the return to break even, it’s time to examine how to grow revenue, including through some budget marketing techniques.
Firstly, you could piggyback on advertising, by sharing with another company in a related field, for example a boilermaker halving ad placement costs with a plumber. If you sell products rather than services, include promotional materials with your customers’ shopping.
Another idea, particularly in professional services, is hosting seminars or workshops on a topic related to your business to attract potential customers. For retailers, offering a special discount via flyers or social media can often prove effective.
An almost mandatory exercise is maximising your business’ exposure online. You can do this through SEO techniques to boost your website on search engines, and by maximising your business’ social media presence. Engaging a public relations consultant to drive media exposure can many times help promote your business in a more cost-effective way than advertising.
Follow up and stay in shape
Surviving in business is not easy – but by following these simple steps you can help bring your finances back into shape. And if you need support from a small business finance specialist, talk to Prospa about help to manage your cash flow or fund your next stage of business growth on 1300 882 867, or learn more about our small business loan.