8 Ways Your Business Is Hemorrhaging Money

Stop your business from bleeding cash by watching for these 8 signs and administering first aid to your finances as soon as possible.
February 20, 2014

The profit equation has two sides: Money coming in and money going out. If you're like most small-business owners, you have your eye firmly on the "cash in" ball, but pay less attention to where that cash goes after the sale.

As we work our way through the first quarter, it's a great time to get a handle on where the money is going, and watch for these eight signs that your company is unnecessarily bleeding hard-earned cash.

1. Not Tracking Expenses

It's shocking how often small-business owners don't track their expenses by category. If you don't know what you're spending, and why you're spending it, you can't pay enough attention to stop any financial bleeding.

First Aid: Use the past six months' expenses to set a budget, then try to reduce it by 10 percent overall. Many banks and credit cards will provide these categorized statements free as part of your online banking service.

2. Too Much Technology

Sure, you need computers, phones and Internet access to do business in the 21st century. No, you don't need brand-new devices every year or the latest iGadget as soon as it's launched.

First Aid: Buy your technology used. With very few exceptions, a 3-year-old machine from a reputable technology company will fulfill all your needs.

3. The Convention Conundrum

If you get one good idea from an industry convention, conventional wisdom—no pun intended—says it was worth the expense. But attending even two conventions a year can run a five-figure cost.

First Aid: Go only to the best industry event of the year, and minimize the staff you bring with you. For a second conference, avoid your industry and instead attend an event for an industry you serve. This will net you information and new clients.

4. Not Negotiating Ever

New business owners are used to B2B transactions, where the price tag is almost always set in stone. That's not so in B2C transactions. If you're not negotiating, you're overpaying. Always make a counteroffer on any deal you make with a vendor. They will never raise the price because you asked.

First Aid: Call your three most expensive exterior vendors and ask for a 5 to 10 percent reduction in rates. Even if they all say "no," it's great practice for the next contract you make.

5. Variable Expenses Out of Control

Food for the staff lunch. Cleaning supplies. Utilities. Transportation costs. Office supplies. This is where your profit margins go to die. Tracking them is tricky, and they're not terribly exciting—but they add up to thousands of dollars per year.

First Aid: Identify four variables you can reduce with simple tracking and controls, such as reducing fuel costs by consolidating mailing and supply runs.

6. Overdoing the Office

Your front end needs to look nice so your potential customers see you're successful, but too many companies overspend on the furniture and decor for private areas. Remember—you can get just as much work done on a door slapped on top of two filing cabinets as you can on a $10,000 hardwood desk.

First Aid: If you're setting up your office, hit Goodwill, Salvation Army, a used office supply store or Craigslist for your work areas.

7. Outsourcing Overload

Large companies can afford to optimize their workforce by hiring outside contractors for specialized tasks. With the exception of some professionals like lawyers and accountants, this is a mistake for many small businesses.

First Aid: Use the money you would have spent on four hours of a consultant's time to send yourself or a team member to get trained in these specialized tasks.

8. Needlessly Maximizing Media

Your company needs a Web page, but a WordPress or Squarespace presence your intern built will do just fine for your company's needs. You don't need a five-figure custom page with every conceivable bell and whistle. The same goes for your social media and e-commerce decisions.

First Aid: You should focus on expanding your Web presence, but keep your page simple, and your social media in-house.

In what ways has your company bled profits in the past year? What are you doing to stop the bleeding? Tell us in the comments below.

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Photo: Getty Images