Insufficient profitability stops business growth in its tracks. It can keep you from fulfilling orders, meeting financial obligations, and investing in new opportunities.
Reaching break even is the first step to financial stability, so it should be the top priority for your business. Here are a few common problems that may be keeping your business below break even:
1-Break even is unknown or inaccurate:
This is a common challenge for small businesses since fluctuations in expense and profits have a much larger impact during the early stages of a company.
Without an accurate break even point, it is impossible to set prices, margins, and project profit growth. This means your business is operating blind with limited ability to predict an accurate financial future.
2-Pricing needs adjustment:
Pricing is tricky, especially when you are new to a market. It is critical to find balance between profitability and competitiveness when selecting prices.
If current prices are insufficient to bring you above break even, it’s time to rethink pricing. While low prices can be effective to draw in customers, falling below profitability for long periods will starve your businesses of resources. This can hinder your ability to deliver even if new sales continue to come.
3-Overhead is too high:
Any business expense not directly related to product manufacturing or service performance can be considered overhead. For small businesses, this can be a significant resource drain since many businesses invest in a level of overhead greater than they need with the plan of “growing into it” as revenue rises.
While preparing for growth is a good idea, businesses should be careful not to go too far. If your overhead is too high for revenues to keep up, you can ultimately stifle growth due to a lack of resources to fulfill orders.
4-Variable expenses are too high:
This ties into the question of price. If the cost of manufacturing or service performance is too high, profitability may be a mathematical impossibility.
If your variable expenses are far above the industry standard, it can be challenging to compete while remaining profitable. This can be caused by inefficiency, overpriced inputs, or a variety of other issues within product delivery flow.
In the worst case, businesses may see record sales and huge growth without a penny of profit. This can lead to a downward spiral that is hard to recognize. Operators are focused on growth, only to get to the end of the year without anything to show for their efforts.
5-Market awareness issues:
This issue can go both ways. On the customer side, a lack of knowledge about your product could be slowing sales or hurting customer perception of value (and therefore their price tolerance).
On the business side, you may need more info on your customer demographics. This allows you to sell more effectively and also to set prices and make product/service decisions to match consumer preferences.
Market awareness issues can cause and compound the rest of the challenges on this list. Maybe you’ve invested in an expensive storefront (significantly raising overhead) that customers are indifferent to. Perhaps your investment in product quality is not bringing back a comparative increase in perceived customer value.
Diagnosing insufficient profitability can be challenging without the right clues. With CapShots™ you can cut through complexities and identify potential issues with ease. Utilizing CapShots™ intuitive financial diagnosis system, you can get your business on the path to financial success! Don’t let insufficient profitability hold your business back, call (404)-869-8559 to learn more!