How to bounce back after business losses?
by Hemal Karelia
Hi, I have a small business of elevator components in India. Ours is a family business and our company is 30 years old. When we had started our business it was a huge success and everything was good. But as the time passed by the sales started falling and expenses kept increasing. Because of this, profit slowly started turning into losses.
Expenses are not only company based but also personal because we have a big family and our everyday expenses are increasing. In short my requirement for money is more than what my business is making.
For example, if my gross profit is $100,000 then my net profit is $-20,000. which is loss of 20,000 a month. The business is making profit but because of my family expense it goes into loss.
Now I know everyone is going to say cut down the expenses and increase the sales ... well even i know that! The thing is I have tried cutting down on expenses, but with a big family and today's markets, it is not possible to make any sort of big expense cuts. My fear is that this will only increase as the time moves on.
Coming to the sales part, you will say increase the sales to make more profits in order to cover the expenses.
For that let me tell you that many companies to whom I used to supply materials have crashed and are now bankrupt. So I have lost loads of money which has made my inflow of cash very bad. So even if I want to increase the sales I don't have the money required to produce those goods. A loan is not an option because I already have a loan against my house and I also have other debts.
What I need help on is: How should I manage my resources and how should I manage my money. I have managed to contain my losses but am making no profit and I see that with no change I will fall into losses again. Handling money and how to use it effectively in my business is my challenge.
Response from Kris at More-For-Small-Business.com:
As you've said there are only two possible solutions within your business: you need to either decrease expenses or increase sales (preferably do both). Borrowing more money is not available to you in your situation and is also not a good option in your situation.
Even though you state that you cannot decrease expenses because you have a family to support, you need to recognize that you need to look at all expenses and see if you can find some savings. Can you work with your suppliers to get some discounts on materials? Maybe you could negotiate extended terms or consignment inventory? Does your family work in the business alongside you? Can someone in the family take on a second, part-time job to help out with expenses? You need to sort out your family and your business expenses and try to separate them: you say you can't afford to but if your business goes bankrupt then your family will suffer from that failure. It's much better to try to solve the problem now.
In terms of increasing sales, have you looked at non-traditional ways of earning additional sales revenue? You are an elevator components business in India; can you add elevator repair services to your sales offering? You would not have to invest in additional inventory but you would have to train staff to do the work. Then you charge out the services and the components. If not repair services are there other services you could provide: such as training other companies? It's about adding new services that can bring in extra income but that have a low cost structure for you.
You've got a lot of challenges ahead - put your business first, so that you can protect your employees and your family.