My Business Is Losing Money: What to Do First

Quick answer. Three priority actions: secure immediate cash (URSSAF, VAT, supplier deadlines), diagnose the origin of the losses (accounting result or cash problem), then identify realistic levers (fixed costs, pricing, product mix). Critical marker: in case of cessation of payments (inability to settle due liabilities with available assets), you have 45 days to declare it to the court (art. L631-4 of the French Commercial Code).

A loss-making business is not always in immediate peril. There is a fundamental difference between a net accounting deficit and an inability to pay. At Hayot Expertise, we have supported SMEs showing accounting losses while keeping sound cash—and, conversely, profitable-looking businesses suffocated by ballooning working capital.

Accounting loss = actual income below actual expenses over a period. Cash crisis = inability to pay suppliers, wages and contributions on time, regardless of the result. This distinction dictates your action sequence.

Before any strategic analysis, make sure you can pay tomorrow.

Build a Short-Term Cash Plan (2 to 3 Months)#

List your immediate due items by priority:

1. Wages and social contributions — delays trigger URSSAF penalties and surcharges.
2. VAT and business taxes — delays trigger enforcement and surcharges.
3. Vital fixed costs (rent, insurance, critical services) — some contracts allow termination after non-payment.
4. Overdue supplier debts — they can block your supplies.
5. Bank deadlines — a prolonged default can accelerate the loan.

Compare these actual monthly flows with your average cash inflow over the last three months. If inflows are below fixed outflows, you face a short-term financing gap. Three levers:

• Accelerate inflows: early-payment discount, chasing overdue receivables, more frequent invoicing.
• Spread outflows: negotiate terms with critical suppliers, defer non-urgent investments, reschedule rents if possible.
• Secure facilities: arrange short-term credit (overdraft, factoring) with your bank, while the relationship is healthy.

Evaluate Working Capital Needs#

A silent treasury drain: working capital that grows. If you sell more, or collect later, you finance growth from your own cash.

Once cash is secured, identify why you are losing money. A generic diagnosis ("cut costs") is not enough.

Analyse Gross Margin by Line#

Request a gross-margin breakdown (selling price minus direct cost) by product or service family. Three typical patterns:

1. One or two highly profitable lines, others underwater: redirect sales effort to high margins, rethink or exit the weak lines.
2. All lines above break-even, but total margin insufficient: grow volumes (turnover growth) or cut variable costs.
3. Globally negative gross margin: revise prices or exit the product.

Calculate Your Break-Even Point#

The break-even point = fixed costs / gross margin rate. Example: €30,000 fixed costs per month, average gross margin of 40%, break-even = €75,000 monthly turnover. If your actual turnover is lower, you are loss-making, whatever your other efforts.

Three levers: raise prices if the market supports it, cut variable costs (materials, subcontracting, transport), reduce fixed costs.

Compare Accounting Result and Actual Cash#

Do your accounting losses reflect your missing cash? Common gaps: a depreciation or provision is an accounting charge without an outflow; amortisation corresponds to an earlier outflow. A €20,000 accounting loss may correspond to a much smaller cash burn. Check this with your accountant.

With a clear diagnosis, test the levers one at a time, modestly, before scaling.

Lever 1: Cut Variable Costs#

Renegotiate with your two or three largest suppliers, optimise logistics and transport, compare several subcontractors.

Lever 2: Raise Prices#

Often taboo, sometimes necessary. Test a segmented increase (steeper for new clients), justify it by cost inflation, and watch client churn: if you lose too much volume, adjust.

Lever 3: Reduce Fixed Costs#

Beyond an over-aggressive cut in fixed costs, you risk degrading quality and losing key skills.

Lever 4: Adjust the Product Mix#

If the diagnosis reveals too much weight on low margins, reallocate sales effort to high-margin products, shrink the low-margin range, and offer bundles.

Chronic Loss for Over Two Years#

If the loss is lasting, the levers above do not suffice: the business model must be questioned. Does your target really exist? Is your product too costly to make? Is your price below market? An external audit or strategy advice becomes relevant.

Loss of More Than Half the Share Capital#

If cumulative losses exceed half the share capital, you must convene a meeting to decide whether to continue (art. L223-42 for the SARL; L225-248 for the SA, applicable to the SAS via the reference in art. L227-1). Three options: rebuild equity, reduce capital, or dissolve. Do not delay: failure to convene engages directors' liability.

The Alert Signal: Cessation of Payments#

Cessation of payments is the inability to settle due liabilities with available assets (art. L631-1 of the Commercial Code). At that point, you have 45 days to declare it to the court. Past that deadline without action, you expose yourself to sanctions and worsening debts.

Three concrete signs: inability to pay the month's wages, seizure threats after several months of arrears, refusal of credit by several suppliers. At that point, alert your accountant immediately.

When to Activate Prevention Tools#

Before cessation of payments, three tools allow action, usually confidentially:

1. Mandat ad hoc (art. L611-3 of the Commercial Code): a mediator helps you negotiate with creditors. Confidential, flexible.
2. Conciliation (art. L611-4 and following): an agreement with the main creditors, under court auspices, for a framed duration.
3. Safeguard procedure (art. L620-1): opened before cessation of payments, if you show difficulties but recovery capacity; it suspends creditor action.

Key marker: if your bank hesitates to refinance, it is often time to activate a prevention tool.

Contribution Arrears#

URSSAF applies surcharges beyond a short delay. You can request a payment plan: it is generally granted if you propose a realistic schedule. Never leave a reminder unanswered.

We support struggling SMEs every year. Three observations. First, many seek help only after six to twelve months of loss, whereas three months would have sufficed to pilot levers: waiting erodes cash and damages bank relations. Second, many confuse accounting loss and cash crisis; yet the action sequence differs entirely. Third, directors hesitate to activate prevention tools early, fearing a negative signal. That is often a mistake: a well-run mandat ad hoc stabilises cash and preserves a viable business, where inaction leads to judicial proceedings on worse terms.

Hayot Expertise Advice. Act at the first sign. Build an action plan in four weeks: cash, diagnosis, levers. If it breaks even within three months, you are safe. If not, activate a prevention tool before cessation of payments. The difference between recovery and liquidation often comes down to this proactivity.