How to avoid financial losses in your business

Profit is what we aim in doing business. By achieving it, we can gain financial power that we can use to stabilize our way of living including those of our family, friends and community. It is a joy for every businessman to have a net profit in their statements of income. On the other hand, a net loss at the bottom of those statements may make them frown. Financial losses may occur whether your business is big or a small one. But no matter how big or how small you have, you should do something to avoid those negative results in your operations. Income and losses are the possible results in your income statement. Hence to attract income and get rid of losses, we should know how to play with the nominal accounts – revenues and expenses. The following are the tips and ways on how to stay away from those losses.

Raising the revenue

1. Set the right price. Offer your products and services at the right price. It can be lower or higher depending on how many customers it will attract and how many revenue you will earn. If you have the option to sell at $10 to 1000 people or sell at $20 to 400 people with the same cost and expenses incurred, what would you choose? $10 x 1000 = $10,000 or $20 x 400 =$8,000? You know what I mean. Price is also relative to demand. When there is a high demand on your product, you may increase your price with the consideration of your competitors’ prices. You can control your price, avoid losses, and earn higher income. Just don’t abuse it.

2. Sell at the right quantity. Sell your products at the right volume or offer your services at the right amount of labor. Like setting the right price, setting the right volume can be lower or higher depending on the level of demand. If there is a great demand on your product, then you should align your production on that product. Simply, if there are loads of buyers, then sell a lot. However, we should also consider our production cost and cost to sell those products. Thus, if the example in the previous paragraph has different cost of production and selling, the decision would be different. If the cost of producing and selling 1,000 units is $5000 and 400 units is $2000, then it is favorable to sell 400 units only to achieve $6,000 amount of profit. (1,000 units x $10) – $5,000 = $5,000 or (400 units x $20) – $2,000 = $6,000

3. Produce the right quality of products. To attract more customers and increase you sales, you need to satisfy customers. Low priced but low quality products may sell for first time buyers, but eventually will not be sold for the second time. You should also be concerned of the word-of-mouth effect. The information that will spread to consumers will be the true quality of your products. Just get nice viral testimonials. And to do that you need to offer quality products.

4. Promote. “Loving starts at knowing”. In order to have many customers that love and patronize your products, you need to promote them and put in their minds the right amount of awareness. Promotion can be online and offline. Online promotion may utilize the power of social media (blogging like Wordpress, video sharing like Youtube, lifestreaming like Twitter and social networks like Facebook). Anyone can do these kinds of marketing without spending so many dimes.

5. Find the right location. Another way of attracting customers is to get your perfect location or channels of distribution. Where you should sell your products must be located in the right place that is easy for your targeted costumers to be reached. A perfect location can also be considered online. A website can be your online store or place to transact business.

6. Optimize other revenue on your assets. Aside from your primary sources of revenue, you may also have assets in your backyard that can generate income. An example is your idle warehouse. Why not find a lessee and earn rent income instead of letting it as your idle asset or capacity?

7. Customer care. If you want to have a long-term and consistent income, you need to make your customers and clients happy. They are your lifeblood in doing business. Losing them means losing your sources of income. A simple smile and saying thank you can give a customer a big comfort that will make them your returning customers for a long time.

8. Innovate. You don’t want to store a lot of unsold products. You need to generate more sales in this ever changing world. So you need to innovate and revolutionize. Use your creativity and reinvent your company and products to stay standing ahead of your competitors.

9. Organize. Time is gold. Gold is money. If everything (people, process, system, machine) inside your organization is rearranged and placed in order, your business will run smoothly and efficiently. No time will be wasted and no money will be lost. Production will increase and revenue will rise.

10. Apply technology. Internet and mobile phones are examples of technology you can utilize in making your business more effective an efficient. You need to discover the technology that is newly arising today. Sometimes they are cheaper than you expected. Having a website is not as expensive as you may think. You can have a website as low as $20 a month. Having a blog can even be free. Check it out at Wordpress.com and Blogger.com.

Saving costs and expenses

11. Make employees happy and motivated. When your employees are happy and motivated, they are more productive. Hiring and repetitive training cost of new employees will be minimized. Labor litigation cost will also be avoided.

12. Tax planning. If you legally avoid taxes, you can save on tax expenses. Hiring a tax planner can be costly, but you may save an amount higher than its cost.

13. Get insurance. Loss on fire and other fortuitous events will be reduced by your insurance claims. This also applies on workers (health and life insurance) and personal properties (car insurance).

14. Pay debts. If you have interest-bearing loans, you spend on interest expense. To get rid of those charges, settle your obligations as soon as practically possible.

15. Internal control. Internal control avoids losses such as theft, frauds, database corruption, and property loss. It also saves expenses such as audit cost. It protects your assets that include cash, machineries and equipment and even the people inside your organization. It saves you from loss on robbery, repairs and maintenance expense and costs of litigation.

16. Budgeting. With proper cost budgeting and setting cost standards, you can spend wise. Budgeting involves creating a list of all planned expenses and revenues. It is primarily practiced by business owners for saving and spending. A budget model tells where is your money going so you can do something if it’s heading in the wrong way.

17. Conserve energy and water. No need to explain further, this is saving the environment while saving on power and water expense.

18. Rent or depreciate. If you can afford to buy and own, then buy it and charge with the non-cash depreciation rather than charge an actual rent expense. However, if you believe that the money for your down payment (or full payment) on the property to be acquired can be used to generate more revenue in your operations, renting might be a better idea. Buying or renting commercial properties to use in business requires a careful decision making.

19. Cut-off on entertainment. Representation and entertainment expenses must be incurred only if necessary. Sometimes too much entitlement can’t only diminish your cash but also lessen your momentum to work.

20. Be honest, lawful and responsible. Do business in good faith. Get the right registrations and government licenses. You don’t want to pay penalties to the government in the future.

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