When you run a small business, you have to make a lot of decisions – and often without a lot of information. Not every decision you make is going to be a good one. When you launch products or services, some will be successful, and some will not be profitable.
In Carol’s recent post on the Nextiva blog, “5 Practices that Can Help Small Businesses Cut Losses,” she gives some advice for how to evaluate what is truly a loss, and what to do about it when you have a loss. She begins:
“After spending 7 years and $7 billion, Shell Oil recently decided to suspend drilling operations in Alaska. They were patient for a prolonged period, but they simply could not afford to keep waiting for oil prices to rise.
Granted, a major corporation can afford to spend mountains of money before deciding to cut losses. As a small business owner, however, you can’t afford to watch cash flow out in hopes of better times in the future. Here are five tips on how to keep a hand poised on the cash spigot and how to know when to shut it down.
1. Think critically before acting
If you have a great accountant, you probably know the precise cost of each product or service and can clearly identify the ones that are earning profits or creating losses. You know the products that are perfectly-priced and you can spot the ones that are so popular that they deserve a price increase.
But, can you do the same thing to repair loss situations? You shouldn’t always remove unprofitable products from your line. Your yummy chocolate chip cupcakes might cost you more to make than you can recoup in sales. Sure, you can stop selling them or cut costs by using fewer chips. But, how many customers will you lose and how many other profitable products will see reductions in sales as a result?”
You can read the rest of the post here.