Why Is My Small Business in the Red?

Perhaps one of the most difficult parts of running a small business—after the startup—is maintaining it and keeping it profitable. Seeing red in the business world, at least in the accounting portion of the business, is not a welcome sight. What is a small business owner to do if and when unplanned expenses or inevitable circumstances plunge the healthy black ink into the murkiness of red ink?

Leaking Money!

Most any leaks are not a pleasant discovery and are prone to cause an initial sense of panic. If one likens cash flow and books solidly in the black to the lifeblood of the business, then leakage is certainly not what a small business owner wants any more than he or she would want to see blood leaking from a wound.

So what if the small business owner discovers his or her business is leaking money and causing the business to descend into the dreaded red?  The first step would be to identify where the leak is and what is causing it.

Stop leaking money!


Sources of Hemorrhaging Money

Some savvy business analysts suggest that a sure way to begin leaking money is through the problem of “one”—only one product or service, one marketing or advertising avenue, one main client or customer, one employee or contractor, and being the only one running the business.

Other business experts suggest small business owners may begin leaking money based on their assumptions of how the business should operate.  These assumptions might include such things as insisting on doing things “the way they always used to” or sticking with a traditional approach to business, rather than a contemporary one.

Additional assumptions might simply be a genuine lack of understanding of customers or clients, and their needs and wants, and therefore not providing the goods and services in demand.

Any of these causes and more makes it increasingly difficult for the small business owner to turn a profit, especially since lack of cash flow often means he or she gets behind in paying bills.

Beyond taking drastic measures—such as cutting employees, slashing budgets, and producing unhappy customers—the small business owner might want to analyze reducing costs in other ways in order to improve cash flow and get the business out of the red.

 

Get the business out of the red!

 

Fix the Leak!

Once the small business owner has identified what is causing the leaks, the next obvious step is to stop the leaking. To do this, one must brainstorm potential ways to fix the leak—preferably without any negative repercussions.

If the cause behind the leak is the problem of “one,” then the small business owner may need to consider such actions as adding to the business: products or services, clients or customers, employees or contractors, marketing and advertising avenues, and perhaps a partner or two.

If the cause of the leak is based on assumptions, then the small business owner needs to consider changing his or her mindset and explore such options as modernizing business approaches and getting in touch with the clients or customers on a more consistent and thorough level.

If the leak has multiple causes, and the small business owner is behind on his or her bills, it might be appropriate to consider a service that allows extra time to pay bills. This service, known as bill floating, is one sometimes used by utility providers, insurers, and other companies, to help small business owners pay their bills beyond original due dates without sustaining late fees, overdraft charges, or having services terminated.  

 

Be Proactive!

So it’s time for the wise small business owner to be proactive and do all he or she can at the first signs of leakage. After analyzing and identifying the source of the leaks, one of the easiest and most immediate steps to help get the business out of the red might be to sign up with a bill floating service to help improve cash flow.

About the author

K'Lee Banks has many years of experience in writing for various niches, including business topics such as small business ownership and billfloat.

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