Taking a look at your financial statements and realising that your business is losing money on a regular basis can be very unsettling for any entrepreneur. If you’ve noticed that your company has developed a cash flow leak recently, you’re not alone: uncontrolled expenses are one of the biggest challenges that any growing business needs to overcome.
Following the trail of your company’s money as it comes in from payments and is used for operations is essential when it comes to identifying money leaks. That’s why our financial consulting service that provides you with powerful insights into the cash flow patterns in your business is so beneficial.
Here are some of the common reasons why businesses lose money on a regular basis and what to do about it.
Where did the money go?
The reason financial professionals talk about a “cash flow leak” is that money moving in and out of the business behaves a lot like water.
- When you sell products or services, increase your capital, or take out loans, cash flows into the business and fills up your money tank.
- In a normal month a certain amount of money will flow back out of your business in the form of expenses like overheads, rent, salaries, and communications expenses.
- These outflows are normal and are simply the cost of doing business, but when you see a spike in monthly expenses or realise that the cost of running your business is so high that it’s damaging your profitability it’s time to take action.
Here are some of the most common causes of unnecessarily high business expenses:
Insurance policies
Every business needs insurance, and the cost of not having it can be devastating. Nonetheless, it’s always worth looking at your insurance premiums and shopping around for a better deal.
As your assets depreciate over the years, you may also want to lower your insured value on them so that you can still replace them if they’re damaged or stolen while avoiding unnecessary insurance costs.
Your phone bills
The cost of phone calls adds up – especially if your staff are using the phone when they could use email or other forms of communication.
A company policy that emphasises text based electronic communication like emails, chat support, and messaging services for enterprise can help bring down your telecommunications costs substantially.
Company vehicles
Some businesses require a fleet of vehicles, especially if they do their own deliveries, but once you count the cost of vehicle payments, insurance, petrol, and salaries for drivers, you could be losing a large chunk of your profitability every month.
A delivery or logistics service may be ideal for a smaller business and will take the stress of managing a fleet of vehicles off your shoulders.
Excessive entertainment expenses
Meeting with clients to discuss business is an essential part of the sales process, but all those coffees and business lunches can start to add up.
Business trips can be especially expensive and company owners need to ask themselves whether the benefits of these activities really justify the cost, especially if the business is losing money.
Still can’t plug the leak? We’re here to help
Analysing financial statements to identify sources of wasteful expenditure can be challenging. Luckily, our financial consulting service gives you access to a team of professionals who will work with you to fine-tune your business operations for maximum profit.
To find out more about this service, contact the Bletchleys team today.