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Losing money in your small business doesn’t just involve a simple equation of more financial expenses than income, it also includes other types of expenses that you may not be even be aware of.
If Yogi Berra were a CFO instead of a professional baseball player, I think these would have been his words. Obviously if you have a business that is losing money, you are losing money. But there are even additional expenses that come from a company that is losing money or going deep in debt that the most profitable, financially healthy companies do not have. Here are some examples:
- Higher interest rates on debt – the worse off you are financially, the more you need money to get out of the hole you have dug yourself. This requires you to take on higher interest financing options. Whereas a healthy company could get a business loan at 4% – 5% interest rates, you may have no other options than to take on debt at credit card rates or higher (typically 18% and up). At $500,000 of financing, that’s at least an extra $75,000 per year of interest expense…not very good for a company already losing money.
- Time spent chasing customers for payment – Rather than allowing customers a little bit of grace for late payments, you have to make sure they pay on time or else you aren’t going to make payroll. This is time that could have been spent growing the business, or something more impactful.
- Time spent dodging vendors and figuring out who to pay – Healthy companies are able to pay vendors within due dates without having to blink an eye. Financially struggling companies have to spend time trying to work all kinds of mathematical gyrations. Or, unfortunately, too often, we find that they spend money on resources like us trying to determine who they can pay and who they can strategically put off for yet another week. While we want to help our clients, our value is better placed helping reduce spending, and figuring out how to dig out of the hole. Agreeing on a plan for spending and sticking to it, is time and money better spent.
- Stress – Owners of companies struggling financially feel more personal stress. If they are tired and stressed they may not be executing properly, and making the best decisions. But they can’t afford to take a break, they must get through the day.
- Inability to grow – Rather than having extra money to propel the business forward, financially struggling companies must use money to simply stay alive.
- Taking more risks – Rather than being prudent and diligent with your money, financially struggling companies will take more risks with money – like a gambler trying to get even. They either hope to hit a homerun, or skirt laws to avoid certain expenses. But likely what happens instead is that you will strike out again because you can’t hit a single, let alone a homerun – because you have no money. You are now down to your last out, and the umpires have caught you with a corked bat. You have nowhere else to turn.
Frequently, making money is a choice….and the difference between making money and losing money is a leader’s courage to make difficult financially responsible decisions. If you know why you are losing money, be courageous and do something about it – don’t gamble, but rather decide to spend less than you KNOW you will make. Look for areas in your business that you are spending money on and not getting any value from. If you need help figuring out those areas, we have helped many clients solve exactly these kinds of problems. And, the companies that gain freedom from these struggles, are the ones who follow our advice.
To find what advice is best from your CFO for Hire click here and for some practical ways to reduce costs click our free offer below.