Why isn’t My Business Profitable?

 

It can be difficult for an owner to consistently turn a profit - even if they've been in business for several years. While your sales continue to increase, there could be a number of hidden reasons why your net income is not increasing at the same rate.


If you're not sure why you're not profitable, here are six questions to ask yourself and then outsource Accounting services to minimize the chances of loss.

Am I spending too much money?

- Symptom: Both consumers and businesses can develop the bad habit of spending more than they take in.

- Snapshot: take a look at what you spend your money on. Your operating ratio (the company's operating expenses as a percentage of sales) shows operational efficiency. The lower, the better.

Am I billing too little?

- Symptom: Many businesses, especially in service industries, are reluctant to raise their prices for fear of driving themselves out of business. The cost of running a business keeps rising due to increasing minimum wage laws and other economic factors.

- Snapshot: Examining the profitability metrics of your business as a whole and by service, area can shed light on the optimal prices you should charge your customers.

Did I expand too soon?

- Symptom: Expanding your business before you are ready to do so could lead to hasty financial decisions; decisions that are costly to correct later. Getting the timing right is critical.

- Snapshot: an evaluation of business expansion should include both a review of cash flow statements (historical performance) and a realistic revenue forecast (future performance).

Do I understand my financial position?

- Symptom: You receive financial data and maybe even a few reports from an accountant or auditor, but you don't understand how to interpret the data.

- Snapshot: At a minimum, you should receive a balance sheet (a statement of liabilities and assets at a given point in time) and an income statement (a statement of financial activity over time) every month. If you or your accountant are behind on your bookkeeping, you won't be able to analyze the data, find trends, or make adjustments to your business decisions.

Is my cash flow situation weak?

- Symptom: Without proper cash flow management, businesses can quickly find themselves in a difficult situation. If you need to borrow money, banks require at least a balance sheet and a cash flow forecast.

- Snapshot: Creating a cash flow forecast doesn't mean you'll always have cash, but it can identify a shortfall so you can plan ahead.

What product(s)/service(s) is my high performing product(s)?

- Symptom: You're not sure which products or services are most profitable and which are least profitable.

- Snapshot: The income statement is a great place to see, month by month if there is a particular product or service that is performing well or one that is not. You can then make adjustments in your business as you promote the top performers.

 

Comments

Post a Comment

Popular posts from this blog

What is the difference between bookkeeping and accounting?

Image
  Have you ever racked your brain wondering where accounting ends and bookkeeping begins? Well, you've come to the right place. In this blog, we'll walk you through the key differences between bookkeeping and accounting so you can feel confident investing in the right services for you and your business. Both bookkeeping and accounting are important pillars for the financial success of a business, but they perform two slightly different tasks: Bookkeeping Bookkeeping focuses on keeping an accurate track of a company's cash inflows and outflows. It's about the day-to-day flow of money and keeping finances on track. In recent years, accounting software like our popular Xero has allowed business owners to reclaim the time they would have otherwise spent on bookkeeping. With the click of a few buttons on a smartphone, people can access and update their financial data from anywhere in the world. This is key to being able to focus on accounting, which is about the big p...
Read more

How can you get the most out of a professional chartered accountant?

Image
  Do you know that working with an accountant can make a big difference to your business? Well, if you are one of those whose business means everything to them, hiring a professional is essential. Certified public accountants, or CAs, are financial experts who can help create a more stable position for your business to work from. Whether it's a small business or a startup, it's important to find a chartered accountant who is the best fit for your business. Hiring a qualified accountant means bringing on board an accounting expert who can offer great benefits. From keeping the books to providing business management advice, accountants can help in many ways. And as a business owner, the services you need are most important. You need to make sure that the professional you hire is the right one for your business. Here's everything you need to know about working with CAs. Why should you hire certified accountants? Hiring certified accountants to look after your business...
Read more

Determining Salaries

Image
  Determining Salaries Etymologically, the salary comes from the word “salt”. Indeed, before the introduction of the currency, salt was used to pay for work or service provided. Salt could be exchanged for goods and services. Today, no one is paid in amounts of salt anymore, but the issue of wage negotiations remains important. During the hiring process, a candidate goes through many phases before arriving at the time of negotiating salary and other working conditions. It is therefore a matter of agreeing on a given remuneration between the two contracting parties, namely the employee and the employer. Visit also: Payroll outsourcing services for accounting firms In Switzerland, at the federal level, no minimum income is set by the government. It is the negotiations initiated at the time of the engagement between the employer and the employee that determine the level, terms, and composition of the salary. Obviously, ...
Read more