Business Journey (How Tos)GFA How Tos

How To Cope with Loss in Business

Businesses, aside from non-profits, are designed to be profitable. As an entrepreneur who works relentlessly to provide solutions, it is very natural for you to be taken care of after you’ve taken care of the business and clients.

The pandemic has caused several small- and medium-sized companies to close their doors or experience significant financial losses over the past couple of years. Whether it is a business or an investment, and whether it is due to external factors or a poor strategy, the subsequent losses may be distressing and put your personal and professional life out of sync. As a result, it is a good idea to not only be prepared for such a circumstance but also to understand how to cope with it if it happens.

Loss is a part of every business cycle, and as much as you might wish to avoid it, it’s best to have a plan of action in place to help your company survive it. When your finances are being depleted quicker than they are being replenished, inactivity can only imply one thing: closure. Rather than waiting for this phase-out, take action and prepare the necessary funds to rectify the issue.

What happens when you learn that your company hasn’t been profitable for a long time and that you’re losing money? Here are some simple steps to take when your business is running at a loss.

1. Don’t make impulsive decisions. 

To start, do not make a bad situation worse by panicking and making impulsive decisions, whether the loss is in business or investment. Avoid making any decision in the heat of the moment and put the long-term effects into consideration if you must make any.  

2. Reduce costs and expenses. 

Cost-cutting should be prioritized if you are implementing an aggressive approach to eliminating losses. Evaluate your costs and reduce them until you have recovered your losses. 

These methods can help your company to be lighter and more efficient. You can also leverage improved technologies to simplify your procedures and boost overall system efficiency. 

3. Claim losses to save tax. 

If you are a sole proprietor or partner in a partnership, you can claim the losses on your tax return and carry the amount to the next year. This reduces your taxable income, which reduces the amount of tax you must pay. To claim tax advantages for the loss, you must declare it in your company’s IT report file. 

4. Look at the bigger picture.  

People tend to target the most obvious pressing matters with energy and passion. That is understandable, and it could make good financial sense in some cases.  

However, it is also a good idea to take a step back and look at the big picture to assess what is still working and what needs to be changed. It’s an opportunity to better understand the scale and complexity of existing problems, as well as your company’s business model—how its strengths and weaknesses interplay. 

5. Evaluate the cause of loss. 

It is necessary to evaluate the reasons behind the loss to move ahead. Most of the time, the situation is not as awful as it appears at first glance. As a result, it is strongly advised that you examine the losses incurred. 

Seek the advice of a senior or an expert if required for a third-party assessment of your situation. This allows you to assess your losses in the most sensible way possible.

Read Also: How To Build Trust With Potential Investors Online

Here are a few tips to help deal with such situations from the very beginning. 

  • Plan and stay prepared. 

Assume that you could experience financial losses at some time if you are involved in a risky business or investment. Planning and prepping for difficult times, such as a recession or economic slump can help small businesses succeed and get through a challenging time. 

With careful planning, you can save your business from going into the red. As a result, you should make financial preparations in advance for such a downturn so that you are ready when it happens. 

  • Diversify your financial instruments. 

You can reduce your chances of experiencing a loss by diversifying your income. You should just not put all your eggs in one basket. Always invest 20–30% of your assets in a wide range of financial instruments, including gold, debt, and equity, to protect your own life and your family in the event of a major loss. 

  • Emergency fund. 

This is a basic requirement for any household, more so if you are self-employed or engaged in risky investments. 

  • Health insurance. 

You should also have adequate medical cover because if you, or any of your family members, were to fall sick when you suffer a huge monetary loss, at least your medical bills will be taken care of.  

  • Ensure your loans. 

If you have taken any big loans such as a home loan, make sure that these are covered, so that if you suffer a huge financial loss and are unable to continue with the EMIs, at least the loan can be repaid. 

In challenging economic times, it can be difficult to keep a small business afloat. Unfortunately, there is no predetermined strategy to use to persevere and put things right. Each small business is unique and has its benefits and risks. Due to these differences, it would be impossible to exactly replicate another company’s recovery strategy.

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Silas Ugochi

Silas Ugochi is a Staff Writer and Content Creator at GetFundedAfrica. Ugochi is an educated content writer who relishes using her skills to help GetFundedAfrica's Media Team achieve the goal of sharing the success stories of African entrepreneurs. When she isn't writing articles, she can be found listening to music, reading, or DJing.

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