What to do when a business is losing money?

Business losing money or not performing like it should? Don’t panic—get a plan. In this video, Steve walks you through exactly what to look for in your financials and the four key levers you can pull to stop the bleeding and get back on track.

These aren’t guesses—they’re proven strategies Steve has used to turn around underperforming companies across multiple industries. You’ll learn how to uncover the real issues, make smart changes, and start rebuilding profit and momentum.

If your business is stuck or sliding, this is the clarity you need to move forward.

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TRANSCRIPT:

If you're building a business, I'm going to show you exactly what to do if your company is losing money. When you go to your income statement, that's the first thing that I would pull. You have revenue.

This is the top line. This represents all the income that the company generates from selling its products and services. You have cost of goods sold.

This represents all the costs associated with fulfilling your revenue, material costs, labor costs, contractor costs, all other direct and indirect costs related to producing your revenue. You take revenue minus cost of goods sold. You end up with gross profit.

Now, we're not done yet because gross profit is not the same thing as operating profit because we have to subtract out OPX, which stands for operating expenses. This includes general and administrative expenses, sales and marketing expenses, and research and development. After we take gross profit minus OPX, we arrive at operating profit.

This is how much money your company earns through normal operations. Now, if we want to get down to income before taxes, we just have to account for other income. I'm going to abbreviate an expense, subtract that from operating profit, and we arrive at income before taxes.

All right, that's the breakdown here. One of the first things you can do is you can pull a profit and loss statement. I would pull that over the last 12 months.

If you look at this number right here, especially, you can look at both numbers, your income before taxes, but I want you to pay attention to this number right here, your operating profit. If it is negative, let's just say it's negative 100, that means that your business is losing money. I'm going to show you exactly what to do to reverse this because I've spent my entire career turning around and growing companies, and I've done that through combining strategy and finance together to drive more value.

I'm going to show you exactly what you can do in your business to reverse this course. Now, maybe you're not losing money, but maybe you're not performing as well as you should be. How do you know if you are? What I would say is when you pull your financial statement, if you look at your profit, your profit margin expressed as a percentage revenue, so if you just take profit divided by revenue, that's going to give you a certain number.

Now, let's say you are a contractor and you do this calculation and your profit is 5%. Well, if you benchmark it compared to other people in your space, let's just say there are other plumbing companies, you're a plumbing contractor and they're earning 10%, that means that you're operating below industry average, which is problematic because who wants to spend more time and energy on their business and not earn the same returns that they can be on an average basis, right? So I would suspect that most businesses out there are earning below industry average profits, right? Especially small to midsize businesses. So if you're watching this and maybe you're like, I could be earning so much more, but there are issues in my business.

Okay, I'm going to show you exactly how you can increase this number as well. All right, so let's go ahead and jump into how to make this better, right? How to fix your business, right? There are four levers that I want to go through today, and the first is going to be the best lever to pull, and that's pricing. Now you're going to want to stick around till the end because at the very end, I'm going to show you where to find a calculator where you can take two numbers off your financial statements, just two simple numbers and determine exactly what the impact of each of these levers are on your bottom line.

Okay, so stick around for that. I'll get into that here in just a minute. All right, so first we have pricing, right? Now pricing is the best lever to impact your bottom line.

So if you're losing money, the first thing I do is look at pricing. Now there are a couple of things with pricing. First of all, most companies are probably not undercharging their customers.

If you are, if you're below market and you can raise your prices, then I'd encourage you to do that because it'd be a very quick win. But if let's just say you're charging a price that is competitive in the marketplace, then what I would do is I would focus on the value formula. So when price right here, if this is price and this is value, when price exceeds value, then customers don't buy because they naturally are aware of this gap.

Whether they calculate it or not, they're just like, okay, this product is not going to deliver the value that I perceive is more than the price. So they just, they don't buy and companies do some bad things in order to combat this. When customers do buy, it's when price is here and perceived value is here.

And the greater the delta, the higher your close rate's going to be. Because this type of offer over here, offer B we'll say, will entice customers because the value is so good, they almost feel dumb saying no to it. So it's your job as a leader to ensure that this perceived value is high.

So how do you increase perceived value? Well, when it comes to your products and services, you can increase perceived quality. You can enhance the customer experience. You can shorten the time to value, meaning the time that it takes for your customers to get results.

Let's just say it's 30 days on average out there in the industry. If you can figure out a way to deliver the same value in 15 days or five days, customers are going to be willing to pay more. You can also eliminate friction.

Maybe there are other products and services out there in the market that just require a lot of friction to get started. If you can make it easier and increase the probability that your customers are going to achieve this value and the success that they're looking for, then you're going to make your product more valuable and therefore you're going to be able to charge more. So this is very important to understand.

Now, what most companies do that I see out there, when price exceeds value and customers aren't buying, they start to panic and they discount their pricing. They discount their pricing.

All right, now check this out. On average, when I did research on the profit levers, there's four profit levers. What I found is that pricing, and I'm talking on average for the general company out there, has a 12% impact on the bottom line. It's like 12.5%. We'll just use nice round numbers here, which means that for every 1% change in pricing, profit would increase by 12%.

That's why this is the best lever. But also what this means is that if you decrease your prices by discounting by 1%, you're also reducing your profit by 12% at the same time. I was just having dinner with my brother last night.

We were talking about a landscape company out there in the market. They're desperate for work. They're running out of work.

They have this big overhead to feed and therefore they're discounting their prices. And he's like, yeah, this other company went up to compete with them and their bid was like $30,000 lower, which normally they're a lot higher. So they're starting to get desperate.

And instead of fixing this, the value to price discrepancy, they took the lazy way out and just did the shortcut and cut their price, which means that they are also reducing their profit at the same time. So that's terrible. So getting this right requires strategy.

It requires having a go-to-market strategy, ensuring you have product market fit, ensuring that your offer to your customers is so good that they'd feel silly saying no to it. So this is the first thing that I would check. Now, another thing you could do with pricing is you could do bundling.

I just had a conversation with another CEO the other day. Let's just say you sell one product here. And this product is $40.

And let's just say you have other products right here that are similar in the same classification, and they're $40 each. $40, $40, $40. All right.

Now, if you're at an event and you're selling this product, then volume is the name of the game because you already have the attention of that consumer, of the customer, right? So what you could do is you can bundle these. You could say, look, if you buy all three of these, I'll sell them to you for $100. Now, you have to understand your gross margin and whether you could do this, but I just want to show you this example of bundling.

Now, you're selling a $100 bundle versus a $40 bundle. Now, in Colorado, I like to ski, and a lot of the ski resorts do this really well. And the way that they do this really well is that you can buy a lift ticket to go skiing for, let's just say, $250, or you could buy a season pass for $750.

Well, in your mind, you're thinking, okay, I only have to go skiing three times in order to cover the cost of the annual pass. I'll just buy the annual pass. And guess what? The ski resorts increase their average revenue per customer.

And more importantly, they do that by increasing the pricing of their base unit here, so then they can bundle everything else together. So going back to this example, you have a product that's $40, $40, $40. You could sell just one individually and just bump this up, let's just say, to $60, and then keep your bundle at $100, which would then make the offer so compelling that somebody would almost be silly not to just buy all three of them, because if they buy one, it's $60, or you buy three and you get it for $120.

So think about the infomercials on TV. Trust me, they figured out this formula. They spent billions of dollars on marketing and researching this.

And that's where you see commercials where it's like, okay, you could buy one squeegee for $5, but wait, there's more. You'll also get three other squeegees and a gallon of glass cleaner and these rags and the shammy, whatever it is, all for free if you act now. And so they throw in all this stuff and they make the base unit, they anchor them with a higher price, and then they bundle everything else together.

You can also have tiered pricing where you have good, better, best, which then allows you to increase your pricing and get more customers into better and best, and therefore increase your profit at the same time. Then customers can opt in for the solution that best fits their needs while also not losing customers by raising your pricing. So many companies out there, they're afraid to raise their pricing.

But like I said, this is the best lever, but you have to do it strategically. You have to ensure that your perceived value exceeds your price. Otherwise you'll increase your pricing and just lose customers.

That's lever number one. Let's move on to lever number two...

This is the top line. This represents all the income that the company generates from selling its products and services. You have cost of goods sold.

All right, that's the breakdown here. One of the first things you can do is you can pull a profit and loss statement. I would pull that over the last 12 months.

Okay, I'm going to show you exactly how you can increase this number as well.

All right, so let's go ahead and jump into how to make this better, right? How to fix your business, right? There are four levers that I want to go through today, and the first is going to be the best lever to pull, and that's pricing. Now you're going to want to stick around till the end because at the very end, I'm going to show you where to find a calculator where you can take two numbers off your financial statements, just two simple numbers and determine exactly what the impact of each of these levers are on your bottom line.

Okay, so stick around for that. I'll get into that here in just a minute. All right, so first we have pricing, right? Now pricing is the best lever to impact your bottom line.

So if you're losing money, the first thing I do is look at pricing. Now there are a couple of things with pricing. First of all, most companies are probably not undercharging their customers.

Now, what most companies do that I see out there, when price exceeds value and customers aren't buying, they start to panic and they discount their pricing. They discount their pricing. All right, now check this out.

On average, when I did research on the profit levers, there's four profit levers. What I found is that pricing, and I'm talking on average for the general company out there, has a 12% impact on the bottom line. It's like 12.5%. We'll just use nice round numbers here, which means that for every 1% change in pricing, profit would increase by 12%.

We were talking about a landscape company out there in the market. They're desperate for work. They're running out of work.

I just had a conversation with another CEO the other day. Let's just say you sell one product here. And this product is $40.

And let's just say you have other products right here that are similar in the same classification, and they're $40 each. $40, $40, $40. All right.

Now, you're selling a $100 bundle versus a $40 bundle...

Now, in Colorado, I like to ski, and a lot of the ski resorts do this really well. And the way that they do this really well is that you can buy a lift ticket to go skiing for, let's just say, $250, or you could buy a season pass for $750.

So think about the infomercials on TV. Trust me, they figured out this formula. They spent billions of dollars on marketing and researching this.

That's lever number one. Let's move on to lever number two. Now I'll give you the worst lever or the least effective lever next, and then I'll give you some other good ones here.

OPEX. Remember this stands for operating expenses. OPEX is just your overhead.

Now, if you decrease your OPEX, then you're going to be able to increase your profit. So maybe you're losing money because your overhead is too fat, or maybe I should say your overhead is too big bone, right? Because you're not supposed to say fat. No, I'm just kidding.

All right. So OPEX, what I would do here is I would reduce complexity and waste in the system. So when I was CFO of a billion dollar company, we were losing money when I first came in.

And what I did is I wrote on this whiteboard, this simplify. And that was the mantra for my team. I said, I want to look at every single thing we're spending money on from an overhead perspective.

And if it's not driving value, or if it's not supporting our overall strategy, we need to eliminate it. And so I'd say the majority of companies out there, they have overhead items that are not driving value to the customer, or they're not enabling the company to execute their strategy successfully. They're just wasting money.

All right. So that's what I do. I'd eliminate simplicity, which your employees will love you for it because it's going to give some of their time back.

But then what I would do is I'd go through all your processes, right? All your systems, all your activities. And I would automate everything that you can, especially with AI, incorporate AI into the process. I would optimize.

So I would just figure out a way to get the most out of what you're doing. This is where AI is going to give you leverage. Optimization is really about leverage.

So automate, optimize, and then outsource. So some companies are spending so much money on whether it's accounting, or maybe it's marketing, or maybe it's legal services, or maybe it's customer success. There are a variety of things that they're spending money on that they can outsource, and a partner could do a much better job at a much more efficient rate than they're doing in-house.

All right. So that's what I'll say with OpEx. The worst thing you could do is just go in there and start cutting people.

And oftentimes, if you make these cuts, these people may be adding a tremendous amount of value to your business. So sure, you reduce your overhead, but it has a really bad impact on the overall business. Because later on, when you go to scale, because you're going to fix this stuff, then your business is going to take off again.

You just lost your good people because you cut them, and now you're going to have a really hard time scaling the business profitably. So I'd be very mindful of that. Instead, I'd look at the activities that you could eliminate and reinventing the business model.

Number three. I'm going to give you the second least effective lever to pull, and then I'm going to give you the second best one at the very end. And then I'm going to tell you about that tool.

Volume. So if your business is losing money, it may be attributed to just not doing enough volume compared to the amount of overhead you have in your business. I see this all the time. Companies have a lot of overhead and they don't have the volume to support it.

Here's the big problem with overhead. This OpEx, it's not like it's linear. It's not like your overhead grows like this. Instead, overhead grows in steps.

You have this much in overhead, then you make a hire. So you hire a person and then it steps up and then it steps up and it steps up. Revenue, on the other hand, could be growing in a linear fashion like this.

So when revenue is exceeding your OpEx, like right here, you're okay. You should be making margin and you should be able to cover your cost. But see right here, this is where overhead outstrips your revenue. And this is bad, sad face.

And this is where you're losing money because you're not doing enough volume to recover or support your overhead. So I was just working with a company last year on this. And when I first started working with them, they had so much corporate overhead because they needed the people to support these functions, but they weren't doing enough volume.

All right. So what we did is we went out and opened other locations. We scaled the business. We increased the average transaction value. We increased more transactions across the board. And now the business is profitable again.

And this is what happened to their profit. When I first started working with them, their profit was down here — it was negative. And now it's like up here.

So that's what volume will do. I say it's a second least effective lever, because if you don't fix pricing, if you don't fix OpEx, and if you don't fix the fourth lever, which I'm going to get into in a minute, then you're just exacerbating the problem.

In other words, you're just scaling your problems. So you go to more revenue, but your margins stay the same from a percentage standpoint. And therefore you have slight increases, but it doesn't have the real impact like these other levers.

So how do you increase your volume? Well, I would say you have to figure out a better way to get leads. Right now with leads, there's really just a few ways.

There are outbound approaches. This is sending cold or warm emails or messages or paid ads. You can create content or you can attend events or host events yourself.

What I'll say about this — this is a whole nother video in itself — but I was working with a company a while back and we were talking about getting more leads. And so they put a sales manager over this process and the sales manager went out there and started doing outbound, but then quickly became discouraged.

And he's like, Steve, I don't think this is working, right? I have these scripts that I'm following. I'm sending out these videos and these emails, but I'm not getting the responses that I would expect.

And I said, well, how many messages have you been sending out over the last like three or four months? And he's like, I've sent out like 500.

And I was like, 500? You need to be sending out like 5,000 or 50,000 or, you know, 500,000. When you do that, then come back to me and tell me that it doesn't work. But at such a small scale — at 500 — you're not even going to know what works and what doesn't work.

So you have to go out there and do the reps. It's the same thing as going to the gym, right? Imagine I go to the gym, I do like 10 curls, and then I leave and I'm like, what the heck? Why are my arms still skinny?

I have skinny arms because I do accounting and build financial models. I always joke about that. But it's like, why am I not getting bigger?

Yeah, because you went to the gym, you worked out one time and you think that's going to improve things. You have to do the reps. You have to do, like I said, 50,000 reach outs, and then you'll be able to understand what's working, what's not working.

And then you can automate, optimize, you can outsource, you can improve your lead getting mechanism, and then increase your volume.

Right? So that's one thing.

The other thing that I'll say is going to be a little bit more philosophical. So I like to look at things M to M. Now the first M stands for mercenaries.

So when it comes to a sales team, if you're just going out there and you're trying to get leads and you're trying to close them and you're trying to convert "no"s into "yes"es, sure, that's good for some people.

But for me and for my company, we don't do that because that's a mercenary approach. Mercenary approach is like: take no prisoners, close as many sales as you can, cram these products and services down the throats of your prospects and convert them into customers.

Hopefully they stay long, but if they don't, you'll just go get more. That type of system is not for me. It's not what I preach. It's not what I teach.

Having a mercenary type of sales and marketing model, in my opinion, is not super sustainable.

Instead, we want to turn our salespeople — and that includes every single person in the organization. Even if you don't have a sales badge, even if you're not in charge of business development — every single person in the company is responsible for sales.

Just like every single person in the company is responsible for driving greater profit. Right? That's why I'm a big advocate for financial literacy.

Even if you're in legal or the marketing department, or you're on the front line serving customers, scooping ice cream, swinging a hammer, digging ditches, driving a tractor on a manufacturing assembly line — whatever it is, you need to understand the basics of the numbers because those numbers will tell you the story, which will then empower you to go act.

So the same thing is true in a company. Everybody is responsible for sales.

Now that's where you switch from a mercenary type culture to a missionary type culture.

All right, I believe — this is what I believe in life: we were created to create.

And if we want to be fulfilled in life, we have to create. Because when we create, and when we build, and when we are doing this — and we're creating things of value — then we're going to feel better about ourselves because we were designed to create, to grow, to make things better.

Now you can create things all day long, but if it doesn't connect to people — meaning it doesn't resonate, you create a product and prospects are like, well, that doesn't solve a pain point of mine — then there's going to be a lack of connection.

But if we're creating and we're not connecting with people — if we're not connecting value back to this — well, guess what? We're going to be unfulfilled because we're not connecting. We're not meant to be alone. We're not meant to live in isolation.

And trust me, as good as it sounds sometimes to just go isolate myself on some remote island, I'd probably be miserable. And you'd probably be miserable too.

When we create, and that creates connection, and then it allows us to contribute to society, to communities, to companies, etc. — that's when we're going to feel the most fulfilled as human beings.

You could take it from a business perspective all the way down to a personal perspective — the same thing is true. We create, we connect, and we contribute to society.

That's when we're feeling at our best — the most valuable, the most fulfilled, the most purpose-driven, etc.

So this M stands for missionaries.

So when we go out there and we're missionaries, because we truly believe that the product or service that our company is offering solves a massive pain point — and it's going to improve the lives of our customers — we have a moral responsibility to go out there and do good.

That's where you convert from a mercenary to a missionary.

And if you have a product so good that you know it's going to benefit the lives of your customers, then it's not selling. You're just getting out there and you're saying: “Look, I have the solution to your pain. I want to make your life better. I'm here to serve you.”

That's when volume takes off.

So that's what I want to drive home with lever number three.

The last thing I'll say is this. I don't know if you've ever watched the movie Back to the Future, but in Back to the Future — and I think the second sequel — he goes into the future and there are hoverboards and there's all this future stuff.

That's really cool. So if you imagine you're living in the future and you travel back in time to your past, imagine the value you could create. I mean, there'd be extreme arbitrage.

For example, right now, today, if I could go back in time and visit Steve five, 10, 15, 20 years ago, I would be like, Steve, check this out. There's this company that's going to come on board. It's called Google or Amazon.

There's going to be this technology called AI, right? Chat GBT. And when it comes out, you better like take all the money you have, sell everything you have. Even if you have to go naked and hungry and buy this stock, put everything into it.

I would convince myself to do that because I know because I'm coming from the future, how well those companies are going to do and how much those stocks increased over time. So if I was doing that, how many times do you think I would go back to myself and say, Steve, seriously, like I told you, I visited you a week ago. Did you start buying this stock? Right.

And I was just how myself, how myself, how myself, but it really wouldn't be helming. I would be doing a service to myself because I knew for sure that this would create success. The same thing is true with our products and services.

When we truly believe in the value that our products and services are going to deliver to our customers, it's not selling. You're going to them and you're saying, this is going to make your life better. And that's when we become missionaries.

And that's how you increase volume. And perhaps your business is losing money because you don't have this culture embedded in your company.

All right. Last one, number four.

All right. Number four is this: cost of goods sold. COGS for short. We talked about that up here and this involves a variety of things, but there are two main things.

First, it's renegotiating with suppliers.

Let me talk quickly about this. Back in the day when I was running my landscape business, we were doing a lot of volume with our irrigation suppliers, with our nurseries and with aggregate suppliers. And what I learned early on was that it was best not to beat up our suppliers.

So when I say negotiate with your suppliers, you can do that tactfully. You don't want to beat them down to bare bone margins. And here's why.

Just imagine I'm on a job site, right? And my crew runs out of a certain part in irrigation supply. They're trying to finish this job, but they're an hour away from the supply house. Well, if I beat up my suppliers and I need an additional part to finish this job and I call them up and say, Hey, look, is there any way you can bring this part out to me? They're probably going to feel that resentment still from me beating them up on their pricing.

And they'll say, yeah, we could bring that out next Wednesday. Not helpful. So then I got to send my foreman to go drive an hour to go get that part and drive an hour back.

Guess what happens to the crew while the foreman's gone? Productivity sinks. They don't finish the project. And therefore that impacts my throughput, which I'll get into in a minute, all because I was trying to save a nickel.

So just be careful when it comes to negotiating with your suppliers. Don't beat them up too much. Make sure it's friendly.

And hey, maybe you are in a commodity market and supplier relationships don't matter. If that's the case, then yeah, go for the lowest cost, for you. But I would just say, be careful of that.

The next thing with cost of goods sold is going to be your labor, right? And labor is typically the biggest expense in a business. In fact, it makes up about 30 to 50% of a company's cost structure, typically. And when it comes to labor, really what you're trying to do is optimize throughput.

Now throughput could be measured in two ways by taking gross margin or revenue and dividing it by some element of time. I'll just say an hour. So you have gross margin or revenue divided by an hour.

And the key here is to maximize your throughput. Now, if you measure gross margin, that's the best way to measure throughput, but you're not going to know your gross margin typically until a few weeks after the month's closed. So that's why I like revenue because it could be in real time.

Everybody could understand this — what gets measured gets managed. Just by measuring throughput, you're going to improve throughput. I've seen it over and over again. But here's the deal.

You can optimize labor by training your employees, by upskilling them, by investing in better equipment, by adopting technology, by eliminating friction along the way.

Right? So I would be focusing on labor and I'd measure that through throughput or return on labor, which is just NOPAT (net operating profit after tax) right here, right? This is your net divided by labor. And that'll give you your return on labor.

Just to quantify this, a 1% decrease in cost of goods sold will have a 7 to 8% impact on the bottom line.

And now you have the four levers. So if you're running a business, your business is losing money. You know exactly the four areas that you can focus on to turn things around and in which order.

Now, as a bonus, if you want to know exactly for your business — customized to your business — what impact each of these levers will have on the bottom line…

In other words, a 1% increase in pricing, a 1% decrease in OpEx, a 1% increase in volume, and a 1% decrease in cost of goods sold.

If you want to know what the numbers are so you can communicate that to the team and make better strategic decisions, you can get that tool. I'll show you where to get that here in just one minute.

But imagine the power of that.

If you can say to your team, look, for our company, if we increase pricing by 1%, it will have an 18.3% impact on the bottom line. If we reduce our overhead though, it will only have a 4.6% increase on the bottom line.

I'm just making these numbers up, but you can see the power in specificity.

If you want the specificity — which I highly recommend — go to coltivar.com, navigate to the tools page, and look for the levers of profit calculator. There's a video on that page where I walk you through exactly how to use the tool, but you're going to compute your cost of goods sold as a percentage of revenue, your OpEx as a percentage of revenue.

You'll input it into the tool.

Those are the only two numbers — super easy — and it'll spit out exactly what your levers are and the impact they'll have on your bottom line.

All right, it's free. It's easy.

I can't make it simpler for you, right?

But just go there: coltivar.com, and check out that free tool I prepared for you.

All right, that's it. Now you're empowered.

If your business is losing money, stop — fix it.

And if you're not earning the profit that you deserve, now you have the exact roadmap to go in there and turn things around, right?

If you need help with any of this, or if you ever want to talk strategy, you can always connect with us or with me at coltivar.com.

All right, until next time, take care of yourself.
Cheers.

What to do when a business is losing money?

TRANSCRIPT:

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