The Quickest Ways to Lose Money in BusinessNov 29, 2021
Have you ever heard this popular phrase about money?
“Money Flows In & Out Like Water”.
In the business world, you want to think of your capital position as a dam, where you can control the outflow of water and have enough space for the inflow of water.
Unfortunately, too many times in business, it feels like the “dam” has burst.
Depending on the situation you are in, you can either:
- Repair the dam
- Ensure the structural integrity of the dam (i.e. prevent it from bursting).
The primary goal of business should be to grow and maximize profit…which means it’s important to stop the outflow of money.
Although there are many factors that result in a business losing money, let’s take a look at the quickest ways business lose money because of their immediate impact to the capital position.
What Are the Quickest Ways to Lose Money in Business?
- Poor Financial Management & Knowledge
The first point is a fairly obvious one. If you aren’t on top of your numbers or don’t have any financial knowledge, then it’s a high possibility that you will be bleeding money.
You need to have an organized and accurate system for accounting, so you’ll have visibility of how much money is coming in versus how much is going out. This means creating a system that delivers frequent reporting to you (daily, weekly, monthly and/or quarterly).
Without this knowledge, you might be spending too much on resources with the assumption that you still have a lot of money in the bank.
In addition to not knowing your numbers, poor financial management can result in a quick loss of capital. If you or any person in your company that has access to the finances are not equipped to handle money, then be sure to find someone that can.
Poor financial management is essentially when money is being spent without awareness to why and how it’s being spent, along with not keeping track of the spend. It’s easy to get lost in weeds financially, but much more difficult to find your way out.
- Lack of Awareness
Don’t let your title of CEO and Founder trick your mind into thinking that you are now a rich billionaire celebrity like Mark Cuban or Jeff Bezos. You don’t need to fly first class, you don’t need to have a corner office in a skyscraper, you don’t need a game room, you don’t need a theatre in the office, you don’t need to provide free breakfast and lunch, and you don’t need to do many of things that are perceived “cool”…otherwise you will bleed money quickly.
Be aware of yourself and your current situation. Whatever funds you have should go towards growth of the business.
- Mismanaged or Unqualified Team
If your staff isn’t trained well or if they are not the best available talent, then you can guarantee that you will be losing money quickly.
Weeks can go by very fast and that means salaries begin to add up, while productivity continues to decline. The compound effect of this is catastrophic to a business’s bottom line.
Your team deserves priority from your side. SOPs and proper training will help the team do their job properly, while also helping you weed out qualified and unqualified employees.
Be sure to remember that culture plays a big role on your team’s effectiveness. Ensure that you have desirable working conditions, empowerment, diversity & inclusion and appropriate compensation and benefits.
- Lack of Strategies
If you have been reading my work or been following me, you will know that I’m a big believer in creating “sound strategies”.
Many entrepreneurs will throw out a goal and call it a strategy. Unfortunately, that leaves them running around, making decisions on the “fly” and basically putting out fires.
Strategies help lay out a plan of action. I’ve talked about how you should flesh out the 2nd, 3rd and 4th implication of your original strategy so that when you have to react in real-time, your decisions will be sound.
I’ve been in scenarios where a partner of the business would never want to get into strategy discussions because they believed it was pointless. Suffice to say, that was one of my businesses that ranks at the bottom of my endeavors.
The point is that if you don’t have a plan of action, one that can be implemented and executed, then you will be losing money quickly because you are essentially just wasting time.
- Compiling Debt
Debt is having loaded nachos at 11 PM at night as it provides immediate pleasure in the moment, but heartburn throughout the night.
Going back to point # 1 of this article, if you are unable to manage funds appropriately, then debt can be your worst enemy.
Many entrepreneurs believe debt is free money. Obviously, not only does the debt have to be repaid, but it also accrues interest. Repayment of debt becomes a drag on the business, many times leaving owners in a bind because rather than putting money towards business growth, it goes to the monthly premiums.
Debt is a large reason on how businesses can lose money quickly.
- Poor Pricing Strategies
If you price your product or service too steep or too low, you are likely losing money quickly.
A low price point results in a volume game, where you have to sell a large quantity in order to bring in effective revenue.
A steep price point will turn customers off, leading them to find others selling alternative products.
Set the right price, market your products the best way you can, and provide value for what you’re selling.
The best price for your business is the one that drives the most sales while meeting your profit margin targets. Of course, this can only be discovered by testing out your sales strategies and funnels.
- Increasing Lifestyle
As businesses make more money, entrepreneurs tend to increase their lifestyle versus reinvesting the money back into the business. While it’s perfectly understandable for you to enjoy the benefits of your hard work, you should think about the timing of when to reap the rewards during your entrepreneurial journey.
If you are still in growth mode, and your business has not stabilized with consistent revenue, your focus should be keeping all profits in the business until it’s self-sustaining. Taking money out of the business to fund a lavish lifestyle is a guaranteed way to lose money quickly in your business.
There are many ways to lose money in business. Some take a while, and others can lose money very quickly…as identified in this article. Be sure to follow the 7 strategies laid out above so that you increase the chances of your business becoming profitable.
Remember, money flows in and out like water. You want to do your best to keep the dam from bursting.
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