No matter how carefully you manage your business expenses, you cannot avoid waste altogether. Business loss is a fact of life, but how much loss you incur is key. Sometimes, cutting costs in one area may end up costing you more in another.
Good business management is about understanding where the loss is coming from, so you can make informed decisions about what to cut and what to accept. Some business costs are clear, but hidden costs can steadily eat away at your budget and your profits.
Here are some key factors that can contribute to your business losing more money than necessary.
1. Miscalculating or Mismanaging Inventory
Perhaps one of the most difficult tasks of running any business is successfully managing inventory. If orders come in and you don’t have enough reserve on hand to fulfill it, you can lose sometimes critical business.
On the other hand, storing supply also comes with several carrying costs. Overproduction is one of the most common causes of waste in manufacturing, so when you are looking to cut costs, that’s a great place to start. Inventory management software can go a long way towards helping you cut inventory costs and adopting a Just-In-Time production strategy.
Inventory management software can help you identify peaks, valleys, and fluctuations you may not know of to help you better prepare for them.
2. Not Streamlining Your Processes
Perhaps one of the most pricey phrases in business is “but that’s the way we’ve always done it!”
As the old saying goes: innovate or die.
Modernization, however, is not always that simple. Just like understanding where to spend and where to save, understand where changing workflow will create far more problems than it solves. Before you cut out tasks like administrative work you don’t see the point in, talk to the employees that do the work. They can also point out tasks they may not see value in.
Good communication between workers and management can help create a streamlined process that cuts out excess time-wasters while keeping the tasks that matter.
3. Being Stingy in The Wrong Places
Successful business management is about understanding where to splurge and where to save.
Keep in mind that while one person may own a company, a successful business is a group of people working together to achieve a common goal or task. Not taking the “people factor” into account when deciding where to spend and where to save can have a disastrous outcome.
With business spending, in particular, it is vital for managers, owners, and execs to check their ego. You may want to upgrade to the latest and most impressive modern tech, your employees may be more interested in better training on what they are already using. By not upgrading critical systems, you may end up hemorrhaging money in overtime pay or a complete system failure. Sometimes, ego spending can cut your budget for much more critical but less impressive expenditures.
Making poor decisions about where to spend and where to save your hard-earned money can cause a great deal of financial stress that can reduce both your own personal motivation and overall business productivity.
4. Making Decisions Too Slowly
Running a successful business often depends on balance.
Deciding too slowly can often be as damaging as making a critical decision too hastily. The list of small, daily decisions that owners, executives, and managers have to make about their businesses can already be overwhelming. In fact, decision fatigue is a common problem among busy managers and entrepreneurs. That can cause pushing off bigger decisions.
In fact, Steve Jobs’ infamous uniform of black turtleneck and jeans was his way of cutting out the time spent making smaller decisions, to leave more time and energy to make the more important ones.
Learning how to make good business choices is a process that may involve some surprising elements. Concepts like not deciding when you are tired or hungry are just as critical as doing your research before making a decision.
5. Not Preventing Employee Turnover
Some degree of employee turnover is inevitable as the average length of employment hovers just above 4 years. Employee turnover, however, is one of those hidden costs that may not be clear on a spreadsheet.
Losing a single employee can be costly but losing more of them at once can cripple an organization, especially if they were from the same team or division.
There are only a few root causes of high employee turnover. If it’s happening to you, identify the source of the issue rather than just continuing to hire new employees to cover your losses. There are several cost-effective ways to keep your employees happy, engaged and motivated. In fact, keeping current employees satisfied at any cost can often save you money in the long run.
Too often, managers, CEO’s and business executives get so caught up in their spreadsheets and numbers they forget to consult with the people involved. While there are times for “command decisions” such as in a crisis or when things need to move fast, those should be made sparingly and only under the right terms.
More often, the best decisions about where to cut were to save, and how to improve your businesses’ processes can happen by consulting people that will be directly affected by the outcome.