Have you ever gotten to the end of the month and wondered where all that business revenue went? Yeah, we’ve all been there.
More likely than not it’s because you’re leaking profits. In other words, you’re either losing money that’s supposed to be coming in or you don’t have enough coming in to begin with. Here are some places where you may be leaking profits in your business.
For most freelancers, the first thing they may notice when they are trying to determine where they are leaking profits is that they are undercharging for their work.
This could be for a variety of reasons including, not taking into account how much time a project takes, not taking costs to run your business into account, or just not asking for more money.
If any of these sound familiar, then you are definitely leaking profits in your business. Usually, this is a simple fix of sending out your invoices — or increasing your rates.
Services and products you don’t use.
I know I’ve definitely lost money due to a bunch of stuff I bought for my business that I never actually used. Fortunately, I’ve learned my lesson which is why I’m holding off on buying a good camera until I know that I’m actually going to use it.
Not keeping an eye on our expenses, and not taking the time to carefully consider investments, could lead to leaking profits from month to month. Before you know it you’ve spent thousands of your hard earned cash on items [stuff] you don’t use, and while it is technically a tax deduction, there’s no reason to waste money.
Taking too much time to complete projects.
I mentioned this in the first section, but it bears repeating. A major source of profit leaks in your business is not completing projects quickly enough.
This could be for a variety of reasons, but in my experience, I had to learn to boost my productivity in order to stop leaking profits. In my case, that looked like joining a coworking space where I get twice as much done as I would at home. This allows me to turn projects around quickly and therefore get paid faster.
Additionally, one of the reasons you may be leaking profits by taking too long to complete projects is if you’re spending your time on tasks other than client work or product development. In other words, you’re wasting your time on things that don’t actually make you any money.
If this is the case, then you may need to consider outsourcing some tasks so that you have time to focus on money generating activities.
You’re not keeping an eye on your books.
Another area where business owners are frequently leaking profits is in their accounts receivable. More specifically, they don’t have a good system in place to keep track of invoicing, payments and which clients owe them money.
I can’t tell you how many stories I’ve heard from business owners who forgot to send an invoice or haven’t followed up with someone who owes them a payment. Fortunately, online services like Due make it easy for you to keep track of all of these things automatically.
You may also want to consider putting some systems like automatic billing in place. This significantly increased cash flow in my own business.
While leaking profits is a pain, it is fixable. Start by looking at these four areas to see if you need to pull the plug on spending, or plug up some other leak.