Why is my business struggling when sales are high?

Running a business always comes with risks. If you’re making lots of sales though, then great! Half the battle is won.

But making sales isn’t the same as making a profit so even if you’re getting the money in, you might still find the business is struggling. If you’re in this position, don’t feel like you’re alone. It’s very easy to be so focused on making sales that the other moving parts of running a business seem secondary. Enter stage right: good bookkeeping.  

Keeping detailed, up-to-date financial records helps you see what’s going on. 

No one starts a business just to do the bookkeeping work – unless they’re an accountant of course! Chasing invoices and compiling receipts takes time away from doing what you do best in your business. 

If you’re a little bookkeeping-shy, it’s understandable, but these jobs do pile up and they don’t go away without work. This is where profit-gremlins can hide and grow. If you really are accounts-adverse, it’s a wide move to either simplify the act of bookkeeping, or outsource it all together. 

It can be a big step for a business owner, but it doesn’t need to be another massive cost eating into your profits. Shop around for bookkeeping software that can help with the workload, or research accountants who offer monthly billing to help you manage the fees.

Understanding your financial reports will take you a long way

Whichever way you choose to go about it, your bookkeeping has more uses than helping you complete your tax return. Turning those figures into useful financial reports will help you identify areas in the business which need your attention, and where you can be more efficient

Running a financial report is the equivalent of popping the bonnet of a car and taking a look at how things are really running behind the shiny outer layer. 

It gives you detailed insight into how your business is performing, which areas are making money, and which aren’t. It can be daunting if you’ve not run a complete financial report before, so it might be worth breaking it down into sections, for instance running a profit and loss statement first, then a cash flow statement. 

Good accounting software should make this job a lot easier, as all of your important information is already in one place. Double bonus points if it updates your reports in real-time, reflecting new transactions as they’re entered.

Take a good hard look at your profit margins

As the saying goes, turnover is vanity, profit is sanity. You can make all the sales in the world, but if the money you make is balanced out (or lower!) than the money that you spend to make those sales, then your business will struggle.

Are you charging enough? What do your competitors charge? Can you lower your costs without impacting the quality? It’s surprisingly common for businesses to start up, forge onwards, and not really think about the costs that they’re carrying that they don’t actually need. 

As the business develops and you become more experienced, hit pause, and consider if some of your spending is really necessary. Some of those ‘start-up essentials’ are probably unused! 

You could also shop around for new suppliers, or push back on price to negotiate yourself a better deal. 

Lacking in inventory management 

If you’re running a product-based business, you may need to tighten up your inventory management. Put simply, some business owners buy too much stock. Sales might well be good, but if they’re not happening quickly enough and bills are still coming in, it then affects your cash flow. 

This can really eat into your profit margin. It’s all about balance, so really get to know your sales patterns over the months and calendar year. For instance, pay attention to whether you sell more of one particular product in the winter rather than the summer. If you do, you’ll know to buy less of that product in the summer months. 

A good inventory management software should help keep on top of your stock and help you to identify patterns and trends in your sales, such as best-selling items. This way you can better plan what products to buy in and when. It will also force you to keep a closer eye on inventory that is lost by means other than sales e.g., spoilt products, wastage, or even theft! 

Be honest about your abilities – it’s ok to ask for help!

You have to be honest with yourself here. Not everyone running a business is business minded. If you’re great at what you do, there’s nothing wrong with passing on the other bits to those who are great at what they do. 

It’s the principal reason larger corporations hire specific Managing Directors. They know how to run a business, whereas you know your product or service and the market inside out. If you feel like this is you, you might want to consider getting a mentor

This can be a seasoned business professional to bounce ideas off and ask for guidance every so often, or a more formal schedule of meeting. Whatever suits you! 

Freelancer News is dedicated to providing useful support and information to freelancers in business.