8 reasons why a business is losing money out of the blue
When we start working with financial accounting in companies, the first thing we do is collect basic reports. Thus, we digitize the company. And thanks to this digitization, it is almost always possible to find a serious leak of money, or even more than one.
In this article, we tell you where business money most often flows. We suggest checking if your company has such “leaks”, and if there are, fix them as soon as possible.
Reason 1. Unprofitable projects
Unprofitable projects are those that do not bring profit to the company, or bring, but not enough. In other words, they don’t pay off.
Projects can be unprofitable for various reasons. For example, expensive materials may be required, the costs of which will eat up all profits. Or it turns out that in order to complete the project, you need to hire employees, get confused with logistics or a warehouse. But more often the problem is that the company does not plan work in advance, but agrees to all projects without understanding which of them are profitable and which are not, and therefore loses money.
For example, the manager of an architectural bureau has a choice: to take an order for 1 million rubles or an order for 500,000 rubles. Everything seems to be simple: half a million is less than a million, so you need to take the first order.
At this point, the manager makes a mistake because he does not take into account the time needed to complete the project. He does not think that on a project for a million, the whole team will have to plow for four months, and the second project can be completed in a month and move on:
The opposite can also happen: the company will abandon large profitable projects, because all employees are already employed in less profitable ones:
What to do. Not to take on unprofitable projects will help planning and calculations for each project before starting work.
It’s also great to conduct analytics on all projects, clients and directions in order to abandon them in time. Because it can happen that a profitable project eventually becomes unprofitable, or vice versa. Analytics will help track such changes and not invest in projects that will not bring profit.
Reason 2. Huge dividends
There are two problems with dividends:
the owner knows the net profit and withdraws it all as dividends. Then there is no money left for the development of the company and an airbag. One unforeseen expense – and you will have to go into debt and loans, invest personal money;
the owner does not know the net profit and displays dividends intuitively. It’s good if it displays modestly, but it can also output a lot. For example, a company has a net profit of 300,000 rubles, and the owner takes 500,000 as dividends.
Here the owner withdrew dividends, and then bang – there was not enough for salaries. If dividends have not yet been spent, you can invest them back into the business. But if spent, take a loan, borrow from relatives, sell what you bought for dividends.
And so on in a circle: stress, nerves, cash gaps, loans and the feeling that the business constantly requires investments. So the company loses money if the owner withdraws too large dividends from the business.
What to do. One more rule will help: dividends should not be more than net income.
The amount of dividends can be fixed and linked to net income. This will not allow the owner to withdraw from the business more than he has earned.
Reason 3. Expensive corporate parties, a chic office and Greenfield Spring Melody
Management staff salaries, office rent and maintenance, payment for the Internet, communications, corporate events – all these are administrative expenses. Sometimes they imperceptibly grow so that they eat up net profit and can lead the company to a loss. Here are cases where administrative costs are unreasonably high:
corporate parties in Sochi and ten-year-old cognac for all holidays;
renting an expensive and luxurious office to make competitors jealous;
signing up for a million courses that no one takes;
the best coffee, Greenfield Spring Melody and the freshest croissants in the corporate kitchen;
All this chic is not bad at all, but only if the money is spent on it consciously and under control. If a beautiful life requires too much spending, it is better to refuse it.
In short, the company is losing money on what it cannot afford or does not use. At the same time, some administrative costs can be painlessly cut: for example, unsubscribing from all courses and switching from croissants to cookies. Perhaps employees will not even notice this, and the company will stop losing money.
What to do. It will help to plan administrative expenses based on spending in previous months and track the dynamics. If in a typical month 150,000 rubles are spent on administrative expenses, and then suddenly 400,000, this is an occasion to find out why the costs have increased and whether the extra money was justified:
Reason 4. Too high salaries
Let’s imagine an advertising agency in which the salaries of sales managers depend on the amount of the transaction. The more expensive the project, the higher the manager’s salary. But it may happen that the project is expensive, but unprofitable:
If there are many expensive but unprofitable projects, the manager’s salary will grow