2 min read
25 May 2021

Loss is a part of every business cycle, and as much as you may want to avoid it, it’s better to have a plan of action to get your business through it unscathed. When your coffers are emptying faster than they are filling, inaction can only mean one thing—closure. So, rather than wait for this phase-out, take steps and prepare the finances needed to remedy the situation.

Here are some simple steps to take when your business is running at a loss.

Sell more; sell to more:

Identify the top 20% of your customers who account for 80% of your sales. You may need to do a Pareto Analysis to draw these insights. Once you know who your most profitable customers are, focus on them and try to increase revenues. You can deploy various marketing campaigns to achieve this. Next, create a strategy to help your business acquire new customers. To do this, ask yourself these questions:

Do you need to invest more in a vertical that was previously left untapped?

  • Do you need to change or improve the services you provide to your bottom 40%?
  • Do you have a new product idea that will help you draw more customers?
  • Based on these answers, invest in diversifying and attracting a new revenue stream

Cut costs:

Whether you’re taking an aggressive approach towards minimizing losses, cost-cutting should be first on the agenda. These measures can help your business become leaner and more efficient. You can use better technology to streamline your processes and increase the overall efficiency of the system. Other simpler cost-cutting measures include shedding surplus stock via sales programs, sell off assets that are of minimal use but carry a big liability, or use Just-in-Time stocking to keep your inventory levels at their optimum and prevent overstocking. Cutting staff costs can also work in your favour.

Boost cash reserves:

When you’re not earning anything from your business, investing more money in it can seem like a bad idea. But remember the adage, fortune favours the brave. Sell off any ready stock you have at a discount or look at other selling methods, such as going online. Boosting your treasury can act as a lifeline for your business, helping it sustain itself during the crisis. The demand will eventually increase if you get your business through its loss phase without losing employees and goodwill. Pay your staff on time, and take care of working capital needs via a business loan customized for SMEs.

Claim losses to save tax:

If you’re operating as a sole trader or are in a partnership, you can claim the losses in your tax return and carry the amount to the following year. This will lower your taxable income, which in turn will slash the tax bills you have to pay. To claim tax benefits on the loss incurred, you will need to report it in your company’s IT return file.

With careful planning, it is possible to get your business out of loss. Hence you should ready yourself for such a slump in advance to be financially prepared if and when it happens.

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