3 reasons why your business is not profitable

His Work / by admin / December 26, 2019

Alexander Afanasyev

Business finance specialist at Consult-bureau "not dull finances».

If your business requires constant and more new investments in order to stay afloat, you know that it is not normal and the situation must be corrected. For two years in financial consulting, I talked to a bunch of entrepreneurs who suffer from this problem. I went out of this business problem with a debt of 1.5 million rubles in 2015.

Businesses are different, but the problems are the same - and they do not always lie in the fact that the product is bad. I'll tell you about the three most common mistakes, because of which your business does not make money.

Common mistakes entrepreneurs

1. Do you think that all the money business - your

Entrepreneurs often live with the installation of "I = business, the company's cash desk = my purse." They want to leave - taking from the till. It is necessary to fill the car - again climb to the cashier. They are also the owners, so you can.

In fact, it is impossible.

The money that you are in the office or on the settlement account, not necessarily yours.

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If you are working on an advance payment, this can easily be client money and you spend them already, though their commitment is not fulfilled. For example, you make websites spent an advance payment, and the client changed his mind and asked for the money back. Return nothing.

Or the money you'll need in the future. For example, 10 of you took money from the cash register to a new phone, and the 20th to pay wages staff. Some of them will be left without wages, because you bought the phone on someone else's money.

2. You chase the increase in sales

The concept of profits go to high school in the social studies classroom. But entrepreneurs are adults, though about it forget - and evaluate your business on the number of funds on the current account. Indeed, they are considered easier than the profit. But that's about the performance, they do not say anything.

For example, the entrepreneur has sold in the past month to 300 with an average check of belts 3000 rubles. Multiplying the number of received 900,000 rubles. After that, he will deduct a maximum of the purchase price - left, say, 300, 000 rubles. Seems to be OK. Earned, rejoices.

And if you subtract the salary of sellers, transportation of goods, lease of premises, marketing costs, taxes, do not you get 300,000 rubles, and minus 50 000 rubles.

How to calculate the business income →

But consider it all boring and difficult, it is better to learn the marketing and selling twice as many belts. Will already 1.8 million rubles. However, the loss will be even greater because of the increased costs. But who cares?

3. You can not quantify the administrative decisions

Every action in the business should be evaluated through the prism of profit. There is no good and bad management decisions that are profitable and unprofitable. But entrepreneurs do not calculate the effect of which bring their actions.

Gathered together to increase conversion? Make a sales funnel and see what gains in revenues and profits it will eventually. You want to automate business processes? Estimate how time available your employees. Then consider whether you can spend this time more profitably.

For example, you store a single cashier, which serves an average of one customer in 30 seconds. You automate sales, cashier and now spends 15 seconds on the buyer. But does it make sense? If the store there are queues, yes. People will no longer get nervous and leave, there will be more sales. Next you need to calculate how much more and when this increase will pay for automation.

And if there was no queue, and then use any automation will not do. Is that the cashier will be a little more than sit idle.

Of course, fanatically to calculate the effect of the permutation box office at 3 cm to the left is not necessary. But key decisions, in which you invest time and money - it is necessary.

How to avoid such situations,

1. Take the money out of the business itself, in accordance with their roles

Most likely, they have two: the owner and director. The proprietor shall be entitled to dividends from profits. Determine what percentage of the profits will take myself and stick to that number. The director is entitled to a salary. See how many earn a director, and give yourself as much.

Dividends and salary director - it is yours. All the rest - business.

2. Remember that an increase in revenue - this is not always an increase in profits

Open any book on economics. It is written: with the increase of sales volume and price falls increased costs per unit of product. It so happens that one sells 10,000 units sold per month and works at a loss, while the other sells 1000 units - and chocolate. Increase sales volume only as long as it gives the profit growth.

3. Prepare financial model when planning to change anything in the business

Finmodel - this is such a table that shows how a change in one parameter affects all the others, including the most important - the net profit. For it is easy to understand, once you work on one or another indicator or it is inefficient.

An example of a financial model →

conclusions

The problem of entrepreneurs is a phenomenon that I call the absurdity of doing. Man working 14 hours a day, always something comes up, solve any problems. With this approach to the fore the process, not the result. I do-do, and it gives - I do not know.

I'm for a different approach.

The main indicator that the business is running efficiently - this is not the number of operations and earnings. Every action should lead to profits. And evaluate each action is necessary from the point of view of how it increased profits.

And to evaluate the business through the prism of profit, it is necessary to conduct financial accounting: to know the resources of business, key performance indicators and growth levers. Learn more about what financial accounting and why is it needed entrepreneur, read our previous article.