Small Business Roadblocks To Profitability
by NFCU AVP of Commercial Lending Kent Landacre
Have you evaluated your business’s financial statements recently? What does your business’s profitability look like? Is it where you’d like it to be? If it’s not it can seem difficult to determine the causes. There are five (5) roadblocks that can prevent your business from being profitable. A list of the 5 roadblocks to profitability is below along with possible indicators for each roadblock.
1. High Expense Levels
Is management and/or ownership managing expense levels properly? Well, a good place to start would be to compare year-over-year trends in operating expenses to see if there is room to cut unnecessary or wasteful expenses.
2. High Hidden Costs
Evaluate the business’s inventory and accounts receivable levels. Does the business keep too much inventory stocked? Is your business lazy at collecting accounts receivables? Do you communicate payment expectations upfront? These two items tie up your business’s cash which can affect the ability to produce more sales. Another hidden cost to your business is an improperly financed balance sheet. An improperly financed balance sheet is where your business uses short-term debt… aka a line of credit… to purchase long term assets such as equipment. This results in a higher interest expense.
3. Low Sales Volume
Evaluate your prices. Are they competitive for your market? Do you have enough assets to produce sales such as inventory in stock for the customer to buy or personnel to generate the sale? Would extending credit to customers (Accounts Receivables) help generate more sales?
4. High Interest Expense
Evaluate your business’s debt. Is the balance sheet improperly financed? Do you have assets that aren’t productive (Lazy Assets) that you can sell to reduce debt?
5. Low Gross Profit
Evaluate your business’s product mix. Would it be beneficial to only focus on certain product lines that have higher margins (Work Smarter not Harder)? Are the products and services priced right? Are you buying materials economically? What trade discounts are you taking advantage of ? Are you taking advantage of technology to increase efficiencies?
The five roadblocks to profitability can be difficult to spot and they can be detrimental if they aren’t removed. If you think your business might have some of these roadblocks and would like the Neighbors FCU Commercial Services Team’s help in identifying them please call 225-819-2178 to schedule a free financial checkup of your business