Few clients, lack of leadership, problems between partners, entry to the market of a stronger competitor… There are many reasons why a company can disappear . But do you know which is the main one? That it is not profitable . And this is a fact that many entrepreneurs tend to ignore.
The profitability of a business is directly connected to the lack of control over expenses: quite a common situation, especially when sales are high and then there are no cash problems; but one day the clients stop arriving and the income drops drastically. Or when doing the accounts after months, the owners discover that, in reality, they are far from being able to recover their investment. So, they have to face the harsh reality.
Profitability is a key indicator of the health and growth potential of a business . In a nutshell, it represents the relationship between the profit obtained and the total investment made during a given period of time. Tracking this indicator is key to evaluating if you are making good business decisions, since resources are always scarce .
For this reason, today we have prepared a list of the six most common mistakes that could be killing the profitability of your business, and many times without you realizing it. Keep reading!
Mistake #1. Lack of accountability between partners
This is something that happens particularly during the first months, or even years, of the life of the business, when the partners are focused on starting the operation, attracting the first clients and generating sales. And they don’t spend time reporting income and expenses, measuring profits , and ultimately determining the profitability of the business. Of course, cash flow is a very important indicator of the financial health of a business, but it is not the only one.
Mistake #2. Have very high operating costs
When costs are high and out of control, profitability is compromised. It doesn’t matter if the turnover is high or the cash flow is healthy. That is why it is essential to know precisely what the structure of fixed and variable costs is in the company, and create controls, such as audits, to detect problems such as money leaks, ant theft, poor negotiations with suppliers or expenses. superfluous.
Mistake #3. The increase in delinquencies
Another common mistake is ignoring an escalation in the delinquency rate of clients , even when billing and money inflows are high . If measures are not taken in time, customers may understand this situation as normal and seriously jeopardize the future of the company. To avoid it, concrete measures must be taken. For example, making vendors responsible for collecting invoices; define and communicate a clear credit and collection policy; and offer consumers attractive benefits for prompt payment.
Mistake #4. Not making efforts to increase customer loyalty
One of the surest paths to profitability is to not only keep, but retain existing customers . And get them to not only increase their average purchase ticket, but also recommend the company’s products and services , so that they act as true brand ambassadors and attract other consumers.
If your company does not have a CRM, you can access the data from the business administration system , which controls the entire purchase-sale cycle. And generate reports on the most frequent customers, the most demanded products and services, and the average purchase ticket. With this data, you will be able to detect areas of opportunity to improve the brand’s relationship with those customers, and their experiences before, during and after the purchase.
Mistake #5. Invest in products and services without added value
In such competitive markets, generic products and services, which can only compete on price, will arouse little or no interest in the market and will have no impact on business profitability. Before investing in the development of a new line or closing a deal with a supplier, analyze what specific market pain you are going to address, what your differential proposal will be, and carry out tests to measure the interest of your target audience; Otherwise, you will invest capital in products that will only generate “dead” inventory, and therefore significant losses of money.
Mistake #6. Do not automate processes
One of the great advantages of starting a business today is the almost unrestricted access to technology, which allows you to automate processes, improve data exchange, reduce the margin of error, make the operation more efficient in general and, in the end, increase profitability. For this reason, the acquisition of platforms such as those for billing linked to Aspel Factur@ , point of sale administration linked to Aspel Caja, payroll linked to Aspel NOI or electronic accounting linked to Aspel COI should never be seen as an expense. , but as an investment in the short, medium and long term.