Small Business Profit – Why Small Businesses Lose Profit – Top 5 Reasons

Being a qualified accountant, speaking with business owners every day and having run businesses of my own, I have identified the top reasons as to why small businesses especially owner managed businesses are either failing or not making as much profits as they can.

And here I am not talking about strategies of how to increase sales and save costs which off course leads to increased profits. In this article, I am more concerned with the fundamental reasons for small businesses not doing as well as they could.

1) Being a Jack or Jill of all Trades

For anyone running their own business, cash-flow is always scarce especially when you are starting off and therefore the business owner tries to do a lot of the tasks him/herself. Tasks such as writing sales letters, designing websites, writing marketing materials, designing campaign leaflets, bookkeeping and so on are all done by 1 or 2 people and this can actually dig into your Small Business Profit.

You will actually be wasting money rather than saving money. Why?

The business owner has to identify clearly his/her areas of strength and areas of weaknesses. The focus has to be on the area of strength as this would generate the highest rewards and take the business forward. The other tasks that are necessary but which you are not very good at or is taking up a lot of your time has to be out-sourced. And this need not be expensive in this day and age.

If you really want your business to grow, then from the very beginning you need to build a strong team around you and not try to do everything yourself.

A Small Business Consultant could help you identify your strengths and weaknesses and show you how and where to out-source and how you can actually get other business tasks done by joint ventures.

2) Not Setting Goals and Targets

I have found that one of the major reasons for small business owners to struggle is Lack of Focus. They are doing too many things and juggling too many hats.

And this is as a result of not having a clear goal or target to aim for and a timescale that it needs to be done by.

Most business owners have a rough idea but this is not good enough. Why, because you will not know clearly what you need to do on a day to day basis, week by week basis. For example, if you required an increased monthly turnover of £20,000 and your product sales value is £50, then you would need to sell extra 400 widgets per month or 100 extra a week or 20 extra per day (assuming a 4 week, 5 day per week month). This analysis will give you a clear idea of the practicality of what you want to achieve, a measure of whether it is happening and a strategy of what needs to be done.

And most importantly it will make you FOCUS on profit creation activities.

3) Not Having an Eye on the Profit and Loss Account

Leading on from point 2 above, in order to ascertain the way forward, you need to know what your current position is. Most small business owners operate on a whim and think they know what sales, costs and profits are but again it is a guess. Accounts for Inland Revenue purposes are produced months after the year end and knowing what you made 1 year ago is no good as it is too late to take corrective action.

Nowadays there are accounting packages out there that are very easy to use and if you are able to input the right information, you can get up to date sales figures, cash flow position and also profit and loss position which is at worst only a month old.

A Small Business Consultant could be able to identify the important figures you require and implement the software and reporting functions to give you the figures in a cost effective and affordable manner.

4) Not Having A Marketing Strategy

Marketing is the fuel your business needs to push it forward. However most small business owners are weak in this area and make matters worse by doing it themselves. They follow the traditional methods or what the competitors are doing and are mostly following one or 2 strategies and hoping for the best.

The problem here is that a lot of time and money is wasted on marketing that does not work.

Point 2 above has to be linked to this point as your goals and targets will only be met with the right marketing strategy in place.

A Small Business Consultant will help you to devise a marketing strategy that is within your budget and which will take into account your Profit targets and timescales.

5) Not Measuring Results

In order to greatly increase your Small Business Profit, it is vital that you learn to measure the effectiveness of the actions you are taking.

If you have a website, then how many visitors do you have and what keywords are your most important ones. Is your marketing increasing visitors or not.

If you are using ads in local directories, then are these ads paying and making a profit for your business. If not, then you can stop and use your funds in other marketing strategies.

Marketing should be an investment and not a cost. I.e. for every £1 you spend on marketing, you need to get say £2. This can only happen once you measure the marketing activities and TEST your marketing to find out what works and what does not.

As a Small Business Owner, try to build a strong team around you and do not attempt to do everything your self. Get good advice which will actually save you money and quicken your results so that you can have more of your 2 precious resources, Time and Money.

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