Apart from maintaining financial stability, ensuring profitability is a crucial aspect of running a business that entrepreneurs must learn how to master. Simply put, profitability measures a business’s capacity for generating sales without incurring too high of a cost. As a business owner, you need to pay attention to your enterprise’s profitability not only to stay afloat, but also to ensure that your business will thrive in a competitive landscape.
That said, maximizing revenues is already a challenge in itself; it’s even harder if you’re already dealing with other financial concerns within your enterprise. Any business owner is bound to encounter financial issues, but it still pays to know what exactly you’re up against. In this article, we’ll take a look at the financial problems that your business might be facing and how addressing them can improve revenue generation and give you an edge in the industry.
Low Cash Flow
Capital is what keeps your business up and running, but a lack of cash flow may prevent you from sustaining your enterprise and improving it further. There are a lot of reasons why you may be struggling with a low cash flow, from underperforming products to difficult production processes. You might also be too slow on your accounts receivable, which stalls your cash flow by preventing you from securing timely payments.
To identify the main causes of low cash flow, it’s a good idea for your organization to roll out a finance transformation solution, one that will allow your staff to harness the power of useful technologies. These technologies will allow you to conduct thorough data analytics and generate insights using data from your existing systems. These insights will, in turn, be used to create smarter sales forecasts and more accurate reports for business intelligence.
How, exactly, will data analytics tools do that? For one, data analytics will help you gain full visibility over otherwise invisible issues that might be affecting your sales. In addition, such tools can help you determine cost-effective pricing strategies that hinge upon factors such as demand and cost of goods sold (COGS). In relation to pricing, having a clear idea of product demand and sales downturns could help you devise plans for upselling, reselling, and bundling your products or services.
High Overhead and Operating Expenses
Your operating expenses (OPEX) are the costs you incur to cover production activities. These include utilities, rent, equipment, research and development (R&D), payroll, and marketing. If your OPEX is too high due to factors such as high rent, costly ad campaigns, or unnecessary equipment purchases, you might end up spending more than you should for daily operations. Similarly, you could be spending too much on your overhead costs such as labor and raw materials.
Again, this is where taking a hard look at your organization’s financial data can help you determine where you’re spending too much without gaining a significant return on investment. Should you identify certain areas where your organization can bring costs down, it’s best to make the necessary changes as soon as possible to give your company a chance to financially recover.
For example, you can consider switching to more affordable suppliers if it means your business won’t be sacrificing quality, quantity, or timeliness. But before doing so, you can always try negotiating with your existing suppliers for better terms that would save you money in the long run. Optimizing your spending for raw materials through supplier deals can help you lower the COGS while retaining the quality of products and services needed to generate profits.
Funding Out of Pocket
Bootstrapping, or using your own funds for your enterprise’s capital, is a technique that some business owners favor because of the heightened control and ownership it brings.
However, bootstrapping can actually limit your business’s potential, as you can only work with whatever amount of money you can personally afford to invest. Funding your business on your own also means it will take much longer for your business to build the funds necessary to pursue and achieve specific financial objectives. All in all, bootstrapping may be getting in the way of maximizing your business revenues.
To resolve these capital-related concerns, it’s best to go for a more balanced way of securing funding—one that leaves enough financial room for business development. To achieve that balance, you can shoulder most of the expenses and secure extra funding through external sources, such as lenders or investors, to provide a safety net for your business.
High Order Fulfillment Error Rates
Mistakes in fulfilling orders can negatively impact your customer satisfaction rate as well as your brand image. These errors can cost your business a lot of time and money in the form of wasted shipping, production, and labor expenses.
If your business regularly receives customer complaints or requests for refunds, it’s high time to improve the way your business handles and receives orders. Some ways to do this include improving the effectiveness and efficiency of your back-end platforms, working together with suppliers and distributors on streamlining processes, and training your staff on providing stellar customer service.
All these efforts will minimize order error rates, resulting in happy customers—ones that will also be more likely to recommend your business to others. This increase in returning and new customers will then lead to higher overall revenues.
Inefficient Accounting Processes
Aside from improvements to your business’s order processes, you may also want to revisit back-office processes that can affect your finances. These processes include budgeting and accounting, which both play integral roles in financial management. Mistakes in bookkeeping can result in any number of costly consequences, from inefficient spending to tax-related errors.
To prevent mishaps due to faulty record-keeping, consider optimizing your business’s financial management processes through tools such as intuitive accounting software. Alternatively, you can opt for third-party services from a professional accountant who can keep your business records in check and prevent you from overspending your capital.
Money is essential to running any business. That said, a lack of oversight could be preventing your business from generating the maximum revenue possible. By getting a clearer picture of your organization’s current financial posture, you can ensure that your business maintains a sustainable cash flow, minimizes any necessary costs, eliminates unnecessary expenses, and brings in as much profit as possible.
