There’s no shortage of nautical references in business. Staying afloat, keeping above water, bailing out, jumping ship. All of these terms underscore the success-or-failure events and decisions that managers face daily. And most of those are as obvious as the seafaring hazards that captains face. There’s a rocky shoreline ahead and storm clouds on the horizon. Sharks are circling the man overboard.
But not every business is taken under by the icebergs of commerce. Indeed, there can be just as many reasons to worry about small, persistent threats as there are for the headline-grabbing catastrophes. After all, a million dollars lost in one day is no more money than a million dollars lost over a period of months or years.
So what are the tiny leaks in the hulls of business that lead to their capsizing? There are a number of ways that money quietly slips away.
Lack of Tracking
The most important issue is no awareness of exactly where money is going. If you fail to identify the purpose and destination of every dollar that exits the business, you have no way to be sure that it’s being wisely spent. And that can be a burdensome task for small businesses, where the owner is also the HR coordinator, accountant, and everything else. In the case of small business, it’s often best to explore some form of outsourcing these tasks. Learn more about Chrome River if you’re curious about how expense tracking can and should be done.
Much as the sailors must frequently go below decks to look for problems, we must constantly examine every detail of the business in order to know that intervention is needed–and where.
Lack of Understanding
Let’s return to our analogy of a sinking ship. Managers and owners need to understand that the long-term effect of small losses is the same as the short-term effect of a single large loss.
What’s the effect of that drafty window? How many BTU’s are fleeing through it each winter day, and what’s the impact on the heat expense of the business? Certainly the percentage of the bill it creates can be small, but we’re talking absolute expenses, not relative ones.
This returns us to the need for expense tracking. A spoiled food item here and there may not seem to justify an expensive one-time repair to a refrigerator, for example, but a year’s worth of product hitting the garbage bin has a way of sharpening a manager’s eyesight rather quickly.
And sometimes it can be a cash-paid expense that management thinks will save money relative to a non-cash system already in place. This can be any kind of contracted service or input that really isn’t justified but was taken on because of a distaste for handling that type of work in-house.
Labor is perhaps one of the sneakiest ways that we lose money. This isn’t just about idle time or product shrink from sloppy handling. It can actually be from the solution to these problems.
When a worker is slacking off or is breaking too many goods, managers think they’re being decisive to terminate employment in the interest of the bottom line. And while that’s true, there is also a short-term expense in replacing that worker. There is time spent advertising, interviewing, and orienting. Existing staff lose productive time in showing the new hire how to do the job. Then there are fees for background checks, uniform purchases, and lower efficiency from a rookie employee.
So retaining staff is an excellent way to reduce revenue leakage–as long as they are worth retaining. The take-home message here is to think twice before thinking of termination as a way of saving money.
And that goes for every expense. Before the check is written, make sure it’s necessary. Sounds simple, but as we’ve seen in these illustrations, it really isn’t.