Five Reasons Why Your Business is Losing Money

September 12, 2022
CambridgeEntrepreneurAcademy

Five Reasons Why Your Business is Losing Money

If your business is losing money, it can be challenging to pinpoint why. Is it something you’re doing wrong? Are your expenses too high? Is your customer base shrinking? The truth is, it could be any number of factors—or a combination of several. To get to the bottom of things, looking closely at your business and seeing where you might be bleeding money is essential. Here are five of the most common reasons businesses lose money.

Not Selling Enough Products

This one might seem obvious, but it’s worth mentioning because it’s a common issue. If your business isn’t selling enough products or services, you’re not generating enough revenue to cover your costs. To turn things around, you need to find ways to boost sales. That might mean launching new marketing campaigns, offering discounts or promotions, or expanding your product line. Whatever you do, you must ensure you’re focused on bringing in more business.

You’re Overstaffed

Another common reason businesses lose money is that they’re overstaffed.

The average salary of an American employee is around $54,000 annually. So if you have the average number of employees for small businesses (ten employees), you’re already spending $540,000 on salaries alone. And that’s not including benefits, insurance, and other associated employee expenses.

This can happen for various reasons—maybe you hired too many employees during a busy season and never trimmed down the roster once things slowed down again, or perhaps your team is larger than it needs to be due to inefficiencies elsewhere in the company. Whatever the case, if you’re paying salaries to employees who aren’t pulling their weight, it’s time to let them go and right-size your team.

Expensive office buildings in the heart of town

Too Much Office Space

Having too much office space is another way businesses can inadvertently bleed money. If you need to know, the average commercial space in the country is around $24 per square meter. So if you’re renting a 500-square meter office, that’s $12,000 per month or $144,000 annually.

If you’re paying for square footage that you’re not using, it’s time to downsize to a smaller office or coworking space. Not only will this save you money on rent, but it can also lead to increased efficiency since employee cubicles will be closer together, and less ground will need to be covered when walking from one side of the office to the other.

Spending Too Much on Marketing & Advertising

Generating awareness for your brand is important, but spending too much on marketing and advertising can put a severe dent in your bottom line if you’re not careful. On average, companies spend around 10 percent of their revenue on marketing. So, if your business brings in $100,000 per month, you should spend less than $10,000.

If you feel like you’re pouring money into marketing campaigns that aren’t bearing fruit, it might be time to take a step back and reassess your strategy. Sometimes, simply changing up the format of your ads (e.g., running video ads instead of static images) or targeting a different audience can make all the difference.

Employee Theft

Unfortunately, employee theft is also a common reason businesses lose money. About 75% of employees have admitted to stealing from their employers. To prevent this from happening, it’s essential to do background checks on all new hires and security measures (e.g., surveillance cameras) to deter would-be thieves.

These are some of the reasons why your business is losing money, regardless of why it’s always good to prepare for bankruptcy if you think you’re not trying to make ends meet. It’s pretty common for many small businesses, and it can be a lifesaver if you know what you’re doing. Here’s what you need to do to start.

Preparing For Bankruptcy

Get an Accountant

If you don’t already have one, get an accountant to help manage your finances. This is especially important if you’re already in debt or think bankruptcy might be on the horizon. An accountant can help you keep track of your expenses, income, and debts so that you know where your money is going and what needs to be paid off.

Get a Lawyer

It’s also good to get a lawyer to help you out if your accountant has found that you don’t have enough assets to pay off your debt. An experienced bankruptcy attorney can help you navigate the legal process and make sure all of your paperwork is in order. They can also help you consolidate your debts and negotiate with creditors on your behalf. This can give you options when it comes to paying them off.

Losing money can be frustrating, especially if you’re unsure why it’s happening by closely examining your business and evaluating everything from sales volume and staffing levels to office space and marketing expenditures. However, you should be able to get to the bottom of things and find ways to start turning things around. By doing that, you can save your business from bankruptcy.

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