7 Reasons for Business Losses
- The product doesn’t meet the customer satisfaction
- Incorrect product pricing strategies
- Excess overhead expenses
- Ineffective strategic business planning
- Poor management
- Lack of financial capital
- Poor Human resource management
1.The product doesn’t meet the customer satisfaction
unsatisfied customers also may negatively affect to causes reason for business losses.
Customers’ satisfaction can lead to repeat purchases and brand loyalty which increase the profitability of the company. Dissatisfied customers can destroy the reputation of the company.
In a market in which competition is high customer satisfaction plays a vital to achieve the company’s business objectives. Retaining the existing customers is better rather attract new customers and loyal customers can become more profitable to the business organization.
Therefore, as a business organization following initiatives can be taken to enhance customer satisfaction and achieve the success of the organization’s goals and objectives.
A. Refund or replacement actions for dissatisfied customers.
B. Understating the customer needs and offering the best product features to meet customers’
expectations.
C. Treat and respect the customers properly.
D. Deliver what you promise to the customers at right time at the right price with the right qualities.
E. Provide after-sale services to build a strong relationship with the customers.
2. Incorrect product pricing strategies
Another reasons for business losses is the incorrect product pricing strategies. Product pricing displays a vital role in deciding the company’s profitability. Price is the ultimate factor that determines the sales revenue of a company.
If a company makes an incorrect pricing decision it will impact the gross profit and net profit of the company.
So before deciding on the market price of a product following factors need to be carefully examined.
A. Internal product pricing:
- computation of the cost of the product should be based on the internal cost structure of the company. This can be based on total direct unit product cost including reasonable profit margin.
- However, inaccurate cost estimation will impact the product margin and gross profit of the company. Further Inaccurate product pricing will mislead the decision-making process of the management.
- Hence, to make better decisions and achieve business objectives ,accurate costing method should be established.
B. Competitor’s product pricing:
- However, when the market is more competitive you can’t decide the price of a product solely based on your company’s cost structure. The company should carefully analyze and decide the price of the product based on the competitor’s product pricing to remain competitive in the market.
- If your product is in the introductory level you may have to price your product at a discount price to attract the customers to your products.
C. Price elasticity:
- Sometime the company may charge a higher price to boost its revenue of the company. However, if the price charge to the customer is more than the price that they are willing to pay customers will not accept the product and the demand for the product will be drastically declined and which will ultimately decrease the total revenue of the company.
3. Excess Overhead Expenses
Unnecessary Overhead expenses also could be a reason for the business losses. When operational and general administrative costs is high , It will ultimately decrease the net profit of the company.
Based on the company’s operational factors there are various steps that the company can take to reduce the overhead expenses.
A. They can decide whether to buy permanent office premises or rent from a third party:
sometimes, renting out premises may be cost-benefit rather tied huge amount of money to build own premises.
B. Business process outsourcing (BPO):
company can outsource certain parts of the business activities to third parties to reduce the administrative cost of the company.
C. Sold out unnecessary machinery & equipment:
by selling unnecessary machinery & equipment company can increase the company’s operational cash flow and as well as the increase the efficiency of the company. Further, you can use above sales proceed to buy the new machinery which is more productive than the idle machinery.
D. Change the primary business premise:
company can relocate the business premises where the better access to customers and suppliers of the company to reduce the unnecessary delivery charges and travel expenses.
E. Reduce the employment cost:
company can cut down the unnecessary salaries &wages and overtime expenses. The employees may not work fully efficiently during the working hours to get additional earnings during the overtime hours.
Therefore, measurable key performance indicators should be established to improve the efficiency and productivity of employees.
4.Ineffective strategic business planning
Ineffective strategic planning also will negatively impact to make a reason for business losses. Strategic business planning is a process of making specific business strategies to achieve the company’s long-term vision and objectives. In the absence of detailed strategic planning, the company will not be able to succeed in the competitive business environment and may not be able to generate enough profit for the owners and as a result company will turn out badly to make business losses.
Therefore, in the absence of strategic planning, you will not be able to read the current status of the organization and will not be able to better allocate the resources and Employees’ accountability could not be assigned for the measurable objectives and their performance and productivity will be declined.
5.Poor management
Management can run any business organization successfully if they have sufficient knowledge of the company and its operations.
However, some company management may not have the relevant business knowledge and lack the management skills to run the business. Therefore, Company should appoint skill and talent management with relevant knowledge to run the business to prevent such business losses.
6. Lack of financial capital
The company will face problems to run the operations effectively in the absence of sufficient funds and
the company may have to postpone some profitable projects.
Further, the company may not able to pay off the debts to the creditors and lenders on time and they may file lawsuits against the company.
Further, it may be affected the operation cycle of the company and badly affect the operating results of the company.
7. Poor Human Resource Management
Poor Human resource management may be a another factor to causes reasons for business losses. It Will result in a reduction in the productivity of the employees, high employee turnover, and a Decrease in employee morale which ultimately results in a decline in the company’s profitability.
However, if the employees are not recognized or appreciated by the management they will discourage from performing their duties.
Further, management should understand the role of the employees in a business organization, and the success of the company will increase based on the performance of the employees.
Following initiatives can be taken to improve the performance and productivity of the employees.
A. Employees’ Training & development programs should be established to address their weaknesses
and improve their performance.
B. Management should give a clear job description to the employees and their roles should be properly
communicated so that they can achieve the objectives of the company.
C. Production link wages scheme can be introduced as a part of the remuneration and it will increase
the productivity of the employees.
D. Appreciate the employees for the work that they are doing for the company to increase their morale
and establish a comfortable working environment.
E .Taking care of the employee’s physical, emotional and mental conditions that they are facing.
