Where Are Your Business’s Profits Getting Eaten Up?

As a small business owner, especially if you own a business that has only recently opened its doors, the work you do to get to a point of profitability is no small feat. However, rather than enjoying the fruits of your labor, or investing them back into the business to help it grow further, you might still find yourself losing more of those profits than you might expect. So, what is likely to eat into them and what can you do about it? Here, we’re going to look at a few of the usual suspects.


Repairs and downtime

If your business relies on any kind of machinery or electrical equipment in its day-to-day, then trying to get to as close as optimal performance from your equipment is always a good idea. Letting standards slip, and allowing malfunctions to become major problems can end up costing your business a lot. Unplanned downtime doesn’t just require you to spend in order to fix the issue, but it wastes money, paying employees who are unable to operate at their full capacity.

Invest in preventative maintenance and frequent inspections of your equipment to make sure that their chances of going down are severely reduced. For manufacturing and fleet operations, ensure that the operators of your machinery are trained, in part, to maintain them, as well.


Old IT systems

Aside from an increased risk of downtime, older IT setups can also, in general, be a lot less efficient and effective than their more modern counterparts. This goes for legacy IT software, as well as hardware. Some studies have found that modernizing your IT setup can reduce the costs of your business significantly, by improving the reliability, efficiency, and even security of your systems.

Managing the migration from a legacy IT setup to a more modern one requires a little time and investment but, in the long term, you’re likely to save significantly more by eliminating the inefficiencies and extra costs that come with trying to keep an old system on life support for longer.


Inventory shrinkage

If your business holds an inventory of materials or products that you’re planning to sell, then this inventory can be a consistent source of lost profits. After all, if you buy them, and then aren’t able to make use of them or sell them, that’s a clear example of not getting the profit from them that you were expecting.

Shrinkage can happen due to a variety of reasons. Inventory can spoil because it was stored improperly or for too long, it can go missing due to poor organization, it can be damaged, it can even be stolen. Track your inventory, see which of these factors is most likely to affect your inventory more often, and take the appropriate course of action to fix it.



One of the biggest sources of the loss of expected profits is finding that you suddenly have to pay a good deal more in taxes than you hoped you would have to. Every business has to pay taxes, of course, there’s no avoiding that, but there is a significant chance that you might be paying more in taxes than you really need to.

Take a closer look at your taxes and, in particular, this tax deduction list, which details a lot of things that you could be deducting from your taxes, if you aren’t already. A lot of business owners underestimate just how much they’re able to claim off of their taxes. You could see that a lot of your business investments are listed there.


Losing track of your spending

Of course, while you might be able to claim back some of your taxes based on the expenses you’re accruing, this doesn’t mean that you shouldn’t also take a look at those expenses in the first place. It’s easy for spending to get a little out of control in a business, especially when you think that things are going well and you can afford a little extra expenditure here and there.

A little extra can quickly become a lot extra, especially if you give your staff members free rein to buy what resources or equipment they might need. Making use of business bookkeeping software can make sure that you’re kept much more aware of what spending is going on, as well as what you might need to do to get it back under control.


Mismanaged bank accounts

As useful as having different bank accounts to manage your business funds can be, they also leave open a lot of room for fees that can end up eating significantly into your profits. As such, you should make sure that you’re aware of the status of any accounts, as well as what fees they may be charging.

For instance, a lot of bank accounts can come with maintenance fees that might not seem like much individually but, over the course of a year, they can add up. Similarly, any overdraft fees, transaction fees, or otherwise should be fully understood, and you should see if you can do anything to avoid paying them, even if it means changing accounts.


Time theft

It’s easy to lose some of your profits to the little fees, expenses, and bills that build up over time. It’s even easier, however, when it’s being taken directly from your pocket. Individual employees can commit time theft all the time and, to their perspective, a few minutes here and there of excess personal time or covering for a coworker for half an hour might not seem like much.

Over the course of a year, however, with the whole team in mind, it can really add up. If your business relies on employees being clocked in when you expect them to be, then you should look into managing time theft with timekeeping software that can ensure that you’re accurate with your pay.

You deserve to benefit from the profits you have worked hard to achieve. Start being mindful of the ways that business expenses can start eating into your profits, and you can ensure that you keep more to yourself.

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