SBM Articles


Hidden Costs That Are Busting Your Profits

by Mark Lawson

The never-ending quest to boost your company’s financial growth and profitability has many obstacles. Some hurdles are obvious but unavoidable, such as increases in the cost of raw materials, or increased tax burdens. Other threats to your profits prove to be less visible. What are the most common profit busters and how can you take action to put your money back where it belongs?

Reviewing tax strategies annually, along with a midyear touch-base, is a good idea. Your banker can provide you some insights on how this might impact your financial position, but your accountant is always a smart place to begin. Some business leaders are surprised to learn that state and local taxes are where the most opportunities exist. Certain states allow tax credits that will reduce the amount of income tax you owe. Opportunities include credits around renewable energy, historic preservation and even film production. In addition, many cities and counties will offer tax incentives designed to encourage expansion.

An Association of Certified Fraud Examiners study estimates that typical organizations lose an average of 5% of revenue annually due to fraud. They also found that companies with fewer than 100 employees are particularly vulnerable because they are less likely to implement anti-fraud controls that can detect fraud sooner. While your banking partner should have many fraud detection tools in place, the burden of a fraudulent event still rests with you, so it is important to utilize as many preventive tools as possible.

Operational Inefficiencies
If your company’s processes and procedures add up to be as thick as the old yellow phone book, you may be distracting your employees from delivering on company goals. Conversely, some smaller businesses lack the needed policies and procedures that could help them run a tighter, more profitable shop.

Employee onboarding is a prime example of something that can be either process-heavy or sorely lacking. Some organizations have weeklong orientations. Others consist of showing the employee the location of their desk and the coffee machine, and they’re off and running. Most employees would likely agree that the ideal is to strike a balance.

Collection procedures are another common opportunity for improvement. For example, if you have receivables that are accumulating and may go otherwise unpaid, a collection agency could be a wise investment. They may get 30 cents on the dollar, but that is money you might not have otherwise.

Employee Turnover
Employee turnover is riddled with hidden costs that may not be something you’ve factored into overall profitability. The biggest chunk, of course, is the time it takes to hire and train new staff. Could you automate your hiring efforts such as job posting, resume collection and pre-interview questions through an online job site?

Unprofitable Clients
There are many reasons a once-promising client can turn into a financial drain. Fixing these situations can be one of the most direct ways to positively impact your bottom line. It can be tough to part ways with a client, but the impact can be substantial.

Mark Lawson is Director of Treasury Management for Enterprise Bank & Trust.
Submitted 5 years 118 days ago
Categories: categoryBetter Your Business
Views: 3370