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 will tell you where business money most often flows. We suggest that you check if your company has such “leaks” and, if so, eliminate them as soon as possible.
Reason 1. Unprofitable projects
Unprofitable projects are those that do not bring profit to the company, or bring, but little. 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 the profits. Or it turns out that 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: take an order for 1 million rubles or an order for 500,000 rubles. Everything seems 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 it takes 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:
It can also happen the other way around: the company will abandon large profitable projects, because all employees are already employed in less profitable ones:
What to do. Planning and calculations for each project before starting work will help not to take on unprofitable projects.
It’s also great to conduct analytics on all projects, clients and areas in order to refuse them on time. Because it may happen that a profitable project will eventually become unprofitable, or vice versa. Analytics will help to 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 displays it all as dividends. Then there is no money left for the development of the company and the safety cushion. One unforeseen waste – and you will have to go into debts and loans, invest personal money;
the owner does not know the net profit and deducts dividends intuitively. It is good if it displays modestly, but it can also display a lot. For example, a company has a net profit of 300,000 rubles, and the owner takes 500,000 in dividends.
Here is the owner withdrew dividends, and then bang – there was not enough for salaries. If the dividends have not yet been spent, you can put them back into the business. But if spent – take a loan, borrow from relatives, sell what you bought for dividends.
And so 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 takes out of the business too large dividends.
What to do. One more rule will help: dividends should not be more than net profit.
The amount of dividends can be fixed and linked to net profit. This will prevent the owner from taking out of the business more than he earned.
Reason 3. Expensive corporate events, chic office and Greenfield Spring Melody
The salary of management personnel, office rent and maintenance, payment for the Internet, communications, corporate events – all these are administrative expenses. Sometimes they grow imperceptibly so that they eat up the bottom line 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 brandy for all holidays;
renting an expensive and luxurious office to make competitors jealous;
a subscription to 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 money is spent on it consciously and under control. If a beautiful life is too expensive, it’s better to give it up.
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, unsubscribe from all courses and switch from croissants to cookies. Employees may not even notice this, and the company will stop losing money.
What to do. It will help planning administrative expenses based on expenses in previous months and tracking dynamics. If in a typical month 150,000 rubles are spent on administrative expenses, and then suddenly 400,000 – this is a reason to find out why the costs have increased and whether you spent the extra money reasonably:
Reason 4. Wages are too high
Imagine an advertising agency in which the salaries of sales managers depend on the amount of the transaction. The more expensive the project is, the higher the manager’s salary. But it may happen that the project is expensive, but unprofitable: