Loss is part and parcel of any business. Businesses that are newly established are more prone to the risk of losses because understanding the way your strategies work can take some time. If you’re earning lesser than what you’re spending to run your business, you should urgently make some interventions to reverse this situation. Here are a few tips that can help you cut losses in a better way:
1. Increasing sales
The major reason of low business income is poor sales. So if you aren’t getting good returns, it’s time you modify your sales strategies. See if you can increase the charges for your product or service, or introduce a scheme to sell more products at a time. Introduce schemes so that customers return to your company. You can offer membership plans or complementary services for expanding consumer group. More the sales, more the income. So if you manage to boost your sales, you can cover your losses at a faster pace.
2. Reducing expenditure
No matter how huge your income is, if you are not careful about the expenses, you are likely to end up spending more than you earned and eventually taking the business down in a loss. So try to reduce your expenses as much as possible. When you are running in loss, strictly restrict your expenses to only the urgent and unavoidable purposes. Sell assets that are no longer useful to you, try and cut better deals with your suppliers, try and figure out if you can reduce the amount of drawings you’re taking from the business.Along with focusing on the ways of increasing income, also focus on the ways of reducing expenditure because the more you can cut from spending, the more you can save for capping your losses.
3. Seeking advice
One of the wisest ways to mitigate any effect on your cash flow during loss is to seek advice from an experienced advisor. An accountant or a business advisor can suggest you ways to cut losses based on your company structure, past financial reports, and what you expect to see in near future. There are companies like Giddh that offer personal chat assistance 24×7 regarding financial prospects of business. So apart from your own efforts and measures, getting the right advice at the right time from the right person can help you get your business back on track faster than you prediction.
4. Avoid common pitfalls
Sometimes your business can go through a loss even when you don’t expect it to. So despite your belief that everything is in order, there might be some unsuspected risks which can result in loss. You need to be careful about them. For an instance, avoid purchasing things that you cannot afford. Do not make any deals with the supplier unless you have monetary assurance about paying the invoice in time. Operating at an insolvent position can make you bankrupt. Always have a plan to put in action during loss. Back your business with contingency planning. Reserve some fund to use when the income is less. Keep a check on your accounting system and make sure it has no loopholes. Be not fooled by incorrect financial figures and end up with inaccurate business planning. Prefer using a reliable accounting software like Giddh. If you’re careful about such pitfalls, you can not only cope with the losses easily but also avoid them in the first place.
5. Loss for tax purposes
If the total deductible expenses for your business are greater than its income, then it can have a loss for tax purpose. This means that the business will not be liable to pay the tax and the loss can generally be used to reducing income in future years by deduction for loss recovery. However the uses of loss for tax benefits are dependent on whether the business is run by a trust, a company, or as a sole trader. But anyway, you need to be aware about this and if your business fits the terms and conditions, you can definitely avail the tax benefits.
For growing the business, it is essential to take the risks. So by all means, take them. But at the same time, have plans to back your business if the results are unexpected. Monitor your statistics closely and be flexible enough to change the strategy at any required time.