A business mentor of mine had the following observation about running a small business:
“Prices for businesses are like prices for weddings. They just tack a zero to the end of everything.”
While it’s true that making money means spending money, wasted dollars are still wasted even in the context of running a small business. Most entrepreneurs have a solid handle on the major costs of doing business, but you might be surprised how many small leaks your cash flow has sprung. Check your reporting for some of these all-too-common money losers.
1. Employee Turnover
Hiring a new employee costs direct money if you hire out to a headhunter or employment service. Even without those, the costs of training and intake add up to a hundred or more hours of payroll that could be used in running your business. Rapid turnover costs long-term money you could leverage for bigger, better things.
Plug the leak: by paying a reasonable wage according to your region and industry and implementing low-cost ways to maintain workplace morale.
See also: the hidden costs of letting inertia or loyalty make you keep a substandard employee who wastes time, loses clients and reduces the morale and productivity of everybody around them.
2. Unwatched Service Fees
Recurring service charges can build up on the cash flow of your business. Whether they come from automatic signups that accompany a free trial, services you needed once but don’t need anymore or actual services you value and use, it’s easy to let those charges become unaudited background noise in your business’s operations.
Plug the leak: by doing a triage of all expenses for a quarter. Assign each regular service fee a “definitely keep,” “definitely dump,” or “keep only if” designation, then act on them.
See also: service and periodical subscriptions or industry memberships that aren’t pulling their weight – either because they don’t provide value or because you lack the time to use them.
3. Bad Workflow
The problem here is explained best by math. If your business process makes $100 per task and your team can complete five tasks in an hour, you make $500 per hour, per employee. If you can change workflow to increase that to seven tasks per hour, you’re increasing your income by 40 percent.
Plug the leak: by looking for low-hanging fruit like poor ergonomics, suboptimal scheduling, distractions in your workstations and insufficient break times. Once that generates enough income, consider hiring a workflow consultant for a day or two of analysis and advice.
See also: poor health on the part of some employees. We’ve already noted how powerfully you can improve productivity with low-cost employee wellness initiatives.
A study by office label maker Brother found that employees lost nearly a week worth of hours each year searching for items misplaced in the physical office or on their hard drives and email archives. This costs American industry $89 billion annually, and represents about 2 percent of your payroll costs.
Plug the leak: with a page from David Allen’s Getting Things Done. Schedule three days during a slow week to get your office into shape, including labels for where everything goes. Be aggressive about maintaining the new regime until it becomes habit for your whole crew.
See also: not scheduling your time each morning. Personal productivity relies on knowing what you’ll do and when you’ll be doing it.
5. Too Many Soft Costs
You probably have your hard cost ROI figured out to the penny, but the soft costs from utilities for the sales floor, to business lunches, to that convention in Florida, don’t generally make it into your ROI calculations. Without understanding those soft costs, you can’t truly track how expensive new clients and new processes are – which leads to leaks in your cash flow you don’t even see.
Plug the leak: by using average expenses for all soft costs over a quarter, and divide them by the number of units sold during the next quarter. This won’t be exact, but it will give you a more accurate understanding of your per-unit ROI.
See also: expenses you justify because they’re “for the business.” More than one small business owner has bought far too many toys for the office and industry simply out of passion for the process.
6. Maximized Media
The trouble with the web is that it’s infinite and has really, really cheap real estate. The maximum cost in money and hours you can put into it is far, far higher than the maximum investment you can make for real benefits. Bloated webpages, full-time social media staff and high-end per-impression ad campaigns can all drain your budget with little real benefit.
Plug the leak: by using robust metrics on all of your social media and email marketing platforms, and your home page. Find out what’s working, and discard everything else.
See also: losing productivity from spending too much time on social media, long email exchanges and other electronic time losers. This is true for both your staff and yourself, so lead from the front on this issue.
7. Outdated Process Costs
Are you still sending someone to mail out orders instead of using a postage meter on-site? Still hand-checking your mailing lists or using paper when smartphones will track orders faster and communicate them more effectively? Though office equipment investments can be pricy, they often pay for themselves in less than a year with the effort they save.
Plug the leak: by investing in new equipment that simplifies and speeds things up.
See also: low-value, high-cost clients you keep around just because the relationship has lasted so long. If a client is losing you money, holding on to that client just loses you more money.
These are just seven of dozens of leaks that spring in businesses everywhere, and they don’t even begin to touch the specialized leaks that appear in every specific industry. Kabbage can help get you the funding you need to protect your business when these issues arise or to help plug the leaks you have now!
About the Author
Jason Brick is a writer for Kabbage and speaks internationally to small businesses after a fifteen-year career in managing companies for himself and others. His books include the best-selling Mastering the Business of Writing and upcoming Ownership Evolution. When not writing or speaking he enjoys martial arts, board games, cooking, travel and spoiling his wife and sons. He usually lives in Oregon, but is spending the year in Malaysia.Follow on Twitter More Content by Jason Brick