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When those sales figures and profits are on the way up, you don’t have anything to worry about. But as soon as you notice a slight drop in those numbers, the panic sets in. You’re running around frantically trying to work out what’s going on, working your sales team long into the night to try and get more customers coming in. But it still doesn’t work.

No matter how much you improve efficiency, profits are still dropping and you haven’t got a clue why. It might not always be the case that you’ve done something wrong, sometimes there are outside factors that can affect your profits in ways that you didn’t even realize. When you find profits going into a nosedive, one of these things could be the cause.

Low Sales

We’ve already talked about sales a bit but it’s not quite as simple as selling more equals more profit. You can increase sales and still lose profits. It sounds like it doesn’t make sense but if you’re selling an increased number of low margin products, while your sales of the high margin products are decreasing rapidly, you’ll lose profits still.

When you’re trying to increase sales, don’t just look at overall quantity, make an effort to push the right products.

Cyber-Attack

The risk of cyber-attack is growing all the time and businesses are increasingly being targeted. They may be looking to take valuable customer information from you but equally they might want to attack your bank account as well.

If you don’t have managed IT support offering round the clock security, you open yourself up to this risk. Criminals may take money out in small enough amounts that you won’t notice until you’ve already lost quite a bit. It’s worth investing a good amount of your budget in cyber-security to protect the profits you do have.

Increased Expenses

The natural reaction to a decline in profits is to go to the sales figures and look at why you aren’t bringing in as much money. But what happens if you’re bringing in the same amount, or even more from sales?

Lots of business owners forget to keep a close enough eye on their expenses and increased running costs can quickly slash your profits. Increasing the salary of your employees, higher rents on your office space, different suppliers for stationary. There are a thousand ways that your costs can go up and all of those small increases add up and eat into your profits in a big way.

Your manufacturing expenses are one area that you need to keep a constant eye on. Say, for example, you spent £90,000 on staff costs and manufacturing your products which you then sell for £100,000. That’s a tidy £10,000 profit. Now imagine that your manufacturing costs shoot up to £110,000. You’re suddenly losing £20,000 if you don’t adjust your retail price accordingly. However, if you just start ramping up your prices you’re going to see a huge drop in sales. You need to find a new manufacturing company or work out how you can cut costs elsewhere.

When profits start falling, don’t panic. There’s usually a reason and you can always fix it.

*This is a collaborative post.