Who is Stealing Your Profits

The question for you is not “if” your profits are being stolen but the only question is “Who is stealing how much?”

The estimate of embezzlement for the US alone in 2018 was almost $50 billion. This included robbery, cargo theft, larceny and burglary. The top incidents were organized retail crime, employee theft, fraud, burglary, counterfeiting and robbery. Note that employee theft far exceeded the losses due to robbery. In a 2017 survey by Hiscox* the median dollar amount for small or mid-sized businesses (under 500 employees) was $289,864. The median loss for companies with over 500 employees was estimated to be $452,025.

Hiscok provides the following common characteristics to look out for:

  1. Intelligent and curious – eager to know how everything in the office works
  2. Extravagant – often flaunt their wealth
  3. Egotistical risk-taker – rule breaker on and off the job
  4. Diligent and ambitious – beware of the person who does not take vacations
  5. Disgruntled – feel treated unfairly and may want to even the score

I’ll add one more from experience: They are the manager, accountant, controller, bookkeeper or clerk who just can’t get the reports straight and on time. They love disorder in which to hide their own dealings.

According to the National Retail Federation retail goods shrinkage of $48.9 billion is due to four major sources: employee theft (30%), shoplifting (36.5%), administrative error (21.3%), vendor fraud/error (5.4%) and unknown loss (6.8%).**

None of these figures include the billions of dollars lost to employee time that is deliberately wasted, time card falsification, inflated expense accounts, office supplies that end up at home and countless other ways in which employees waste company time and money. Excuse me while I check my FB account…

A number of years ago a senior sales executive (over 25 years with the company) warned me not to make him work from home because he assured me that he would extract the “cost” from the company in any number of ways that the company could never detect. I was no longer with that company when that move was finally made to save money so I don’t know how much, if any, this long-term employee extracted in “payment.”  I often wondered which of his supervisors allowed him to harbor such a terrible attitude.

Just within this year two priests in my city have been indicted for embezzling hundreds of thousands of dollars from their churches. Prevention is a wise thing to do and don’t forget to help keep your employees honest with good systems and audits while you are locking the front door. Embezzlement and shrinkage is just two aspects of the element of Loss which is part of the Profit Equation.

How much of your hard-earned profits can you afford to allow the thieves within and outside your business to take?

Contact us if you would like to learn how to reduce your Losses now.

References:

*THE 2017 HISCOX Embezzlement Study

** 2017 National Retail Security Survey

The Ultimate Dashboard Metric

Velocity is the ultimate dashboard metric. The velocity at which your business resources generate free cash flow is the ultimate determination of success.

The realities are simple. If cash flows out faster than in, you must find working capital to replace it. When you can no longer replace it, the business is finished. If cash flows in at a higher velocity than out, you have the opportunity to sustain or grow.

If you measure nothing else, measure and forecast your cash flow. To the extent that you can determine the cash contribution margin of every significant current and planned activity of your business, you have the opportunity to manage your business.

Leading businesses use this information to either fix, fire or exploit their product lines and services for maximum near- and long-term value.

One of my clients doubled their profits within 6 months by using this simple dashboard metric. This set the stage for a doubling in top line revenues over a period of just 48 months.

Accounts Receivable as a Loss

Two companies I worked with, for example, were able to take steps to recapture $150,000 and $900,000 per year respectively by being more aggressive with accounts receivable, more selective with credit limits and by monitoring and managing cash as a “business” within the business.

How much money are you losing by giving interest free loans to your customers – $150,000 to $900,000 per year?  This is a valid target for cost reduction and profit improvement.

Take a quick look at the accounts receivable line on your balance sheet. What is that amount?  Now look at the line item(s) on your financial reports that capture your interest payments. Do the math to calculate what your borrowing costs are to carry the amount you are loaning to your customers.

Two companies I worked with, for example, were able to take steps to recapture $150,000 and $900,000 per year respectively by being more aggressive with accounts receivable, more selective with credit limits and by monitoring and managing cash as a “business” within the business.