loss | Business Solutions

Profit Secrets

Here are sixteen myths, secrets and pieces of insider’s information about cost reduction and profit improvement that will help you succeed in maximizing your profits.

Sixteen secrets to cost reduction and profit improvement

Here are sixteen myths, secrets and pieces of insider’s information about cost reduction and profit improvement that will help you succeed in maximizing your profits. Are these true or not and what are the secrets to success?

Imagine for a moment what your company would do if:

Your people came to you with solutions instead of problems.
Collaboration was the order of the day rather than dissension.
Profits were strong and increasing year after year.

These are the promises of a Profit Improvement Process initiative.

Here are the questions to the truth of these myths and the secrets to success.

World-class profit initiatives are impossible to achieve.
Suggestion programs are the way to go to reduce costs and improve profits.
Employees always volunteer their best ideas.
It costs a lot to engage a profit expert.
Cutting costs to improve profits will hurt sales.
If an idea will save a lot of money or make a large contribution to profits we should just do it no matter what.
All we really have to do is tell our managers to cut costs.
An informal program is just fine.
Reducing cost will have a negative impact on quality.
Only for-profit organizations will benefit.
Only large companies will benefit.
Profit Improvement Processes only work for manufacturing companies.
Programs have to be complex:
Speed in profit growth comes from getting a quick start.
We can start with just middle management support.
Programs must be fully installed before they produce results:

1) Myth: World-class profit initiatives are impossible to achieve. World-class profit improvement results are difficult to achieve but not impossible.

Secret: See what it takes to have world-class standards with this easy to take free on-line evaluation. It will give you a list of what characteristics define world-class initiatives.

2) Myth: Suggestion programs are the way to go to reduce costs and improve profits. There is no doubt that employee suggestion programs can play a key role in the communication structure of an organization. They do not however tend to produce large or sustainable increases in profits. Studies show that participation in the US tends to be very low.

Secret: Build structure and process around a profit-focused system to maximize success in both the short and long-term.

3) Myth: Employees always volunteer their best ideas. Employees will volunteer ideas until they run into the usual barriers to innovation found in most organizations such as criticism, lack of opportunity, lack of support, and other intervening priorities.

Secret: It actually takes a significant amount of training to diminish the impact of these barriers and provide employees with the tools for overcoming them.

4) Myth: It costs a lot to engage a profit expert. The reality is that a good profit consultant will help you accelerate and expand your profit growth beyond what you can do on your own. Yes, a Six-Sigma program takes about $250,000 and six months just to get started at a small company but you can do a lot better with the alternatives.

Secret: Consult with any potential consultant in advance of engagement. A good consultant will discuss your needs and opportunities in advance with no obligation to give you a good idea of what you should do. Business Solutions – The Positive Way will even conduct a preliminary two-day Power Idea Session with your key staff that is guaranteed to produce at least $50,000 in profit projects. This session will make you money while you evaluate your options. What a deal!

5) Myth: Cutting costs to improve profits will hurt sales. Actually this is NOT a myth! A focus on cost cutting invariably will hurt sales. It is almost impossible to keep the up enthusiasm and spirit that are absolutely necessary to revenue growth when all you are doing is cutting and cutting.

Secret: A balanced approach with a view toward all three elements of the profit equation (revenue, expense, and loss) will not only safeguard profitable revenues but will help you build additional revenue streams as an integral part of Profit Improvement. This approach builds enthusiasm and spirit to build a positive outlook for the future.

6) Myth: If an idea will save a lot of money or make a large contribution to profits we should just do it no matter what. It is a mistake to make cost reductions or other major changes without carefully evaluating the impact against the criteria that are important to your organization. The end may not justify the means. A cut may look good for the moment but damage the organization later…as many corporations have found when they cut too many people in re-engineering programs only to stunt their future growth and profitability.

Secret: Establishing clear criteria for cost reduction and profit improvement that are consistent with the overall objectives of the company can keep you on track with both growth and profits. This is an integral part of the Profit Improvement Process.

7) Myth: All we really have to do is tell our managers to cut costs. There is no question that properly motivated and led managers will do their jobs to the best of their abilities and you will make progress. The reality is that they will run into a brick wall sooner or later.

Secret: Providing your leaders with tools and processes will empower them to go far beyond where their innate abilities and experiences will take them. It’s like everything else; people with training, practice and skills win.

8) Myth: An informal program is just fine. Informal programs usually do generate some savings but they tend to miss less obvious opportunities and slow down. You don’t even know what you’re missing.

Secret: Continuous success comes from well run Profit Improvement Processes that fold into the culture of the organization and become a natural part of everyone’s objectives. Improvements build on each other to enable unforeseen benefits. Further, formal programs ensure that opportunities are evaluated for fit with corporate culture and needs.

9) Myth: Reducing cost will have a negative impact on quality. A well-run cost reduction program uses your quality criteria as a measure of what changes can and should be made. Quality should improve when you remove the costs of low quality, as will costs and margins. Quality and profit improvement programs are synergistic. Continuous Improvement Programs can combine the elements of cost and quality.

Secret: A focus on the cost of quality (loss) as a part of the profit equation in a Profit Improvement Process will ensure that quality improves along with improved margins.

10) Myth: Only for-profit organizations will benefit. Even not-for-profit organizations can greatly benefit from a well run PROFIT IMPROVEMENT PROCESS. Organizations that control their costs are able to use more of their resources to deliver the services that they are charted to provide. Resource contributors as well as consumers appreciate efficiency. Expense ratios are often used as one measure of an organization’s capability.

Secret: Organizations of all kinds that use Profit Improvement Processes are generally more efficient than those that do not. Use a Profit Improvement Process to make sure your organization is not-for-profit on purpose.

11) Myth: Only large companies will benefit. Profit Improvement Processes are ideal for even smaller organizations that do not have the staffing to implement more pervasive and dramatic systematic change systems. Profit Improvement Processes are a great way to start organizational improvement.

Secret: You can build a program that will meet precisely your needs that fits the size of your company. Use something like the Profit Improvement Process that is flexible enough for companies from $10 million to $10 billion in sales with a cost/benefit ratio to match.

12) Myth: Profit Improvement Processes only work for manufacturing companies. Any operation that has an expense structure can benefit from a Profit Improvement Process. They work everywhere where the participants and stakeholders can accept them.

Secret: A well-designed and flexible process can apply in any type of business. The key is to fit the process and the tools to your needs. We found tens of millions of dollars in annual savings and profit improvement in an insurance company.

13) Myth: Programs have to be complex: Even the largest organizations can benefit from simple Profit Improvement Processes. Programs are tailored to the culture, size, and complexity of the organization.

Secret: Simplicity of process is a key to the ability to install and maintain an initiative over the long term. There are a number of different approaches to consulting and programs compared here.

14) Myth: Speed in profit growth comes from getting a quick start. This is actually true to some extent but with real limitations. It is true that delay can be deadly. On the other hand, progress is usually determined by how well the initiative is structured and managed.

Secret: Training and education are critical to success but these are often left behind in the need for speed. Plan for them to happen as soon as possible.

15) Myth: We can start with just middle management support. The reality is that a lack of top management support is the number one reason for failure of any initiative – including cost reduction and profit improvement initiatives.

Secret: Top management must be engaged. It is best to engage them from the start. But, given no alternative, try a test in a single department or business unit with a plan of using the demonstrated results to win over top management. A flexible and skilled consultant can help you do this.

16) Myth: Programs must be fully installed before they produce results: Not infrequently, the program will be started with a core team or representatives from selected departments and skills. That team will focus on target areas and refine the process while creating savings. Once the process is working, they can help lead the broader effort.

Secret: Jump-start your profits. A trial program can be a great way to start on the road to success. Pick one department or business unit as a place to start. Or, try a Power Idea Session with a group of your decision-makers to get a preview and make $50,000 or more in profits at the same time…

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:

Intelligent and curious – eager to know how everything in the office works
Extravagant – often flaunt their wealth
Egotistical risk-taker – rule breaker on and off the job
Diligent and ambitious – beware of the person who does not take vacations
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?

References:

*THE 2017 HISCOX Embezzlement Study

** 2017 National Retail Security Survey

Reconcile Now or Lose Big

Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

A local law office reported that they lost well over $600,000 to embezzlement by their bookkeeper over a 5 year period. The perpetrator was caught, convicted and sentenced to jail for up to 4 years and to pay restitution of $400 per month for 16 years ($76,800).

Once you look for them, you will see that the news feeds are filled with similar stories of embezzlement and the miss-use of funds.

There are two primary reasons for reconciling your bank accounts every time a statement comes out.

The reconciliation allows you to maintain the accuracy of your accounting records and those of the bank. The sooner an error is caught, the easier it is to correct.
A bank reconciliation is an opportunity to detect fraud and theft.

Either of these reasons should be adequate so don’t let reconciliations fall through the cracks. Small businesses with small accounting departments are especially vulnerable to fraud and theft so it is wise to use this powerful and inexpensive tool. Oh yes, it is absolutely necessary that someone you trust do the reconciliations.

Stop the Losses

Stopping losses is often as important as finding improvements – especially in a worsening business climate such. Your sales and credit departments are going to come into conflict over this matter so it is going to take strong management leadership to make the right decisions.

“We’d been doing business with Samssco for about 15 years and they were an important customer to us. We held their hands and were patient with them over the years when they were late making payments off and on over the years. I’d call Sam, he’d tell me what was going on and we’d ship him more product and wait. He’d always pay us. We got a really large order from Samssco – almost twice the normal size but they were already late on the last payment. I called Sam but he wasn’t available. That worried me so I asked our shipping department not to ship. I called Sam again and had to leave a message. Two weeks later I learned that Samssco had filed for bankruptcy. I was devastated. I thought Sam was a friend. We lost over $25,000 but if I had let the last shipment go it would have been over $75,000 and we would have been in trouble along with Sam.”

Revenue may be nice but sales that are written off are far more than lost revenue when they eat the profits from other sales! Make sure you understand the credit health of your customers at all times and don’t rely on sales people to make the credit judgments that you need a financial professional to make. You’ll save yourself a lot of tension and morale in the sales force and probably a lot of money in the long run. How large is your reserve for such losses? In what ways could you reduce it?

Here are six warning signs that may indicate credit trouble ahead before a meaningful change shows up in their credit rating – which you should be monitoring in any case.

Credit Warning Signs

1. Delays in payments. This is an obvious sign and your accounts receivable system should be set up to monitor and report on this on a continuous basis. Make sure you have a team of managers who are in the loop so they can see this and any of these other warning signs and take action quickly.

2. Changes in ordering patterns. The first sign may be a slowing in order volume. This is usually an indication that your customer is experiencing a slowdown in their business. The last sign may be a surprise order of a much larger size than usual. This could indicate that your customer is trying to stock up in advance of getting cut off.

3. Communication problems. You or your staff may have more trouble than usual getting through to your contacts at the company that owes you money. This is especially worrisome when the usual channels of communication for following up on open invoices suddenly slow down.

4. Pressuring the sales force. Your sales force might start getting pressured to make sales in spite of existing credit limits. This is the time to advise your sales team to keep their eyes and ears open for any signs of trouble at the customer or changes in the market.

5. The business sector is in trouble. Know which sectors your customers service directly and indirectly. Remember that that business slow-downs trickle down.

6. The grape vine is humming. Keep your ears open for those tidbits of information that are known to make their way through the industry. Ask all of your people who are in the field or talk to people in the industry to pass on information for the good of the company. Use any “casual” information legally and responsibly and only with appropriate verification.

Manage your credit risk deliberately

It is very costly to write off bad debt because you not only lose the profit on the original sales (if derived from sales) but you also have to make additional sales to cover the cost of sales just to break even.

Profit Improvement

Bad debt is a profit killer. A good profit improvement process invariably includes measures to reduce losses. Don’t give your profits away.

Seven Hidden Costs

Are you paying for these seven hidden costs? Do you want to save money? One recent study showed that about 30% of credit card holders pay $100 or more in hidden costs each year and 10% pay more than $500.

If you take the time to look over your personal credit card statements and regular bills it is quite likely that you will find one or more hidden costs. If you challenge your budget managers and accounts payable teams to do the same with your business bills, you will find even more.

Here are 7 common hidden costs and what to do to eliminate them:

Fees for services you no longer need. Replace that rented modem with your own and get a 6-12 month cash payback.
Renewal fees you never wanted. Many trial offers and “free” online deals come with very fine print commitments to renew automatically. If you had to give a credit card number for that “free” offer, assume that there will be a charge next month. Find them on your bills and cancel them.
Hidden fees are common on phone, utility and other bills. Contact the vendor and challenge your bill.
Phony bills are more common in business than in personal life. Cheaters count on our accounts payable personnel paying bills that look legitimate. Directory advertising is a common subject for phony invoices. Make sure everyone reads the fine print and that people who know what they are doing review the bills.
Unwanted subscriptions. Publishers count on your automatic renewal and some send invoices years in advance of expiration. Check the expiration date before paying any invoices. Cancel those you do not want.
Sneaky surcharges. You may have negotiated a fixed price but you must check the invoices to see if the provider has added a surcharge without informing you. Challenge unapproved surcharges and renegotiate or rebid as appropriate.
Unused services. Phone companies and others such as software vendors who charge by the line or seat count on you not checking to see how many you actually need. Do an inventory and eliminate the excess. One client cut over $100,000 per year from their IT budget with this simple action.

Even scrupulous companies count on busy managers to miss these details and pay more. Now that you are alert you can save yourself and your business hundreds to tens of thousands of dollars every year.