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Problems in business can be temporary, or they can indicate that the business is unprofitable and it is better to close it. The inability to detect difficulties in time and take measures is a common situation among entrepreneurs. Often, by inertia, they continue to "develop" the company, invest money, look for investments, although this only prolongs the agony. In this article, we will figure out what you need to pay attention to in order to notice signs of business unprofitability in time and correct the situation.

What is unprofitability and what are its stages?
First, we need to define what unprofitability is. This is a state of a company when there is either no profit for a long period of time or it does not compensate for expenses.

It is interesting that a typical loss-making enterprise goes through several stages. This can be compared to a serious illness.

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At the first stage, erroneous and ill-considered management decisions are revealed. For example, cash gaps arise due to unacceptably large dividends.
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The second stage is characterized by new wrong management decisions that must correct the previous ones. For example, the owner decides to take a large loan to pay off the obligations.
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In the third stage, insolvency occurs. The cash gap was covered by borrowed funds, then it is necessary to continue paying off obligations, plus pay off the loan and interest. There is not enough money for this with each passing month.
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The fourth stage is obvious bankruptcy, which cannot be confused with anything else: there is no money, no profit, debts are growing, employees are leaving. This stage can be compared to the terminal stage. There is nothing to be done here, only to declare bankruptcy, close the business and start all over again. But it is not necessary to let it get to this stage.
Let's figure out what signs indicate that a business is unprofitable or will soon become so.

Signs that your business is losing money
1. You are calculating net profit incorrectly.
This is one of the most fatal mistakes of entrepreneurs. Let us remember that until all obligations to clients are fulfilled, revenue is just someone else's money in your account. It becomes yours only when the obligations are fully fulfilled: the goods are delivered, the marketing research is conducted, the office is renovated. Then you can calculate the net profit: subtract all expenses for this project from the revenue.

If you consider the money in your account as your profit , it may cost you dearly in the long run.

2. You are not taking into account the break-even point.
The breakeven point is the revenue that allows you to break even. At the beginning of business development, this is one of the key indicators. At first, they strive for it as the main goal, then the breakeven point is set as a minimum plan, and then it is often forgotten. And this is a big mistake.

When a business grows and develops, reaching the breakeven point still needs to be monitored. An indicator of growth will be reaching it faster than in the previous reporting period. Last month, you reached the breakeven point on the 13th, this month - on the 10th, next month - on the 8th. This shows that the business is growing and developing. If reaching the breakeven point is becoming more and more difficult, this is an important marker. It is worth checking the processes and making sure that the business is not unprofitable.

Calculating the break-even point
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3. You don't monitor your website development service working capital.



It would seem that a large working capital is good. But sometimes, paradoxically, it can be a sign of problems.
For example, you had 2 million rubles. You bought raw materials for them and put them in a warehouse for future use. Now you have 2 million rubles, but only in the form of raw materials. It would seem that the amount has not changed, but if you need to pay bills or pay salaries, this money will not help you in any way. You will have to borrow, then pay off the debt. And if you have money not only in raw materials, but also in accounts receivable, in goods in a warehouse, it turns out that it seems to be there, but you cannot use it. Do not allow unreasonable growth of working capital , so that the business does not become unprofitable.

4. Your debts are growing.
This month you took out a loan to rent an office, next month you borrowed for salary, and so on month after month. Debts grow, interest on loans grow, but profits do not grow. This is one of the most obvious signs that the business is unprofitable. You need to figure out what is happening and whether there is anything else that can be fixed. Check whether you are calculating profit correctly, whether there is any, whether you are not living in luxury by withdrawing dividends for yourself.

Please note that debts and indebtedness are not always a sign of business unprofitability. This is what Evgeny Atamanchuk, CEO of the network of boarding houses for the elderly "Dobro", says :

"Indebtedness may be necessary for business development if debt is used to expand production or develop new products. However, if the debt level is too high and revenues do not allow it to be repaid, this may be a sign of business unprofitability."

Vera Kallistratova , head of the accounting consulting agency Simple Solutions, advises to be wary if a company needs loans and credits more and more often:

"Signs of unprofitability can be different, but a truly alarming bell will be a situation where several signs are combined at the same time.

For example, loans and credits in themselves are not an alarming indicator, but if a company takes them more and more often, and has difficulty making payments or even allows delays, this may indicate that the company is working at "zero" or even "in the minus". If the loan was taken for development, and the company regularly makes all payments, then, as a rule, there is no need to worry"

5. Revenue has not grown for a long time or is declining.
Both internal and external reasons can lead to a decrease in revenue. Internal reasons include:

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deterioration in product quality;
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a sharp or unjustified increase in price;
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marketing inefficiency;
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reduction or ill-considered increase in product range;
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reduction in production volumes.
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