Answer: It is not always obvious why a business is losing money. When it occurs in your business, it’s important to step back from the day-to-day activity and look at everything you are doing. Get your accountant involved and contact SCORE for a Mentor to help evaluate what is causing the loss.
Jackie Nagel, Small Business Strategist & Coach at Synnovatia, suggests investigating these potential causes for your loss of money:
Cash flow. As we have stated in previous columns, happiness is positive cash flow for a small business. Many small businesses start off undercapitalized and continue to operate from month to month on a wing and a prayer. When you’re busy with the day-to-day operations of your business, it’s easy to overlook cash flow.
Organizational disorganization. If you, or those around you, are disorganized, it costs you money unnecessarily. For example, failure to order supplies at optimum levels costs your money.
Chasing down subcontractors costs you money.
Set up systems to prompt consistency and foster quality.
Rid yourself of service providers, subcontractors, and suppliers who resist building in systems or support.
Hire a professional organizer to review your office systems and make appropriate changes.
Not paying attention to detail. As a small business owner, you’re the eyes at 30,000 feet, and you’re also the boots on the ground. It’s not uncommon to miss some of the important elements contributing to your loss of money. When you miss enough details, you’re going to feel the pinch.
Hire additional help to manage office details. Schedule regular, uninterrupted time to check email.
Stop multi-tasking. It’s over-rated. Focus on one activity at a time.
Allowing your business to grow unchecked. “Scope creep” is a giant hole that sucks cash like a powerful vacuum from your business if not managed closely.
For instance, a client, for whom you’re doing lawn maintenance, asks for you to do a “small” painting job. Sounds simple enough. Plus it keeps your client happy and generates a little extra cash.
You’re not on the job long before the client asks if you can paint this, that, and the other thing. Before long, the “small” paint job has morphed into a “large” paint job, consuming your time and resources – to the detriment of your core lawn maintenance business!
Develop an accurate bidding system to allow for client changes
Communicate your “change order” policy clearly at the front end of any project.
Initiate a conversation with your client of the additional charges at the first sign of scope creep.
Failure to capture your soft expenses. Do you belong to your local Chamber of Commerce? Did you capture the annual membership fee? How about the after-hours event expenses? Did you remember to include your time spent working on the Chamber fundraising or membership activities?
To fully account for your business expenses, you cannot overlook the expense of your time on ancillary activities.
nclude the cost of your time when planning marketing initiatives. Reset your goals to ensure a good rate of return.
Value your time. It comes with a price tag.
Lack of strategic thinking & planning. It’s easy to do whatever comes to mind or spend all your time to put out fires. It’s hard work to think through and plan how to get from point a to point b in your business.
Without strategic thinking, i.e., testing the assumptions you use to manage your enterprise, you jump from one activity to another without measurable accountability or a clear path. In fact, lack of time dedicated to strategic thinking and planning costs most small businesses their greatest loss of money.
Schedule a regular appointment with yourself for strategic thinking. Connect with a SCORE Mentor for an objective look at your business.
Understand the time invested in strategic thinking is the best money saver any small business has.
If you want to put a stop to the unnecessary cash loss in your business, check the cash holes and take action to plug the holes. You also might contact Cape Cod SCORE at www.capecod.score.org