You know you have to pay the rent, your payroll costs, and many other obvious expenses. That’s because you have a bill, a contract, an invoice, or other demand for payment. But there are some hidden costs that can deplete your bottom line. Recognize what these costs may be so you can address them and boost your profits.
1. Poor productivity
Productivity is a way to measure efficiency. And productivity goes hand in hand with profitability. You pay your staff to do certain tasks with the expectation that they are done well and on time. Today, with the prevalence of “quiet quitting,” (the practice of reducing the amount of effort devoted to a job to the minimum) many owners are lucky just to get things done. A Gallup Poll last September found that quiet quitters make up at least 50% of the U.S. workforce.
What to do: Owners have to get employees to be engaged in their job. It’s not just doing one thing; it’s many. Some suggestions:
- Talk to your staff and listen. Learn about their concerns. This may be work hours or working conditions.
- Value your staff. You may think it, but you need to show gratitude…in words and actions. A sincere “thank you” for a job well done goes a long way.
- Be a good example. Be respectful of employees’ private lives so they can maintain a good work-life balance. This means ceasing communications in off hours except in emergencies. An owner’s behavior is key.
Shrinkage is defined as a reduction in the earnings of a business due to waste or theft. It’s come to mean missing inventory. You may not have in inventory what you think you have until you take a physical count. According to a study last year from the National Retail Federation (NRF), retail shrinkage is a $100 billion problem for businesses in the U.S. It averages about 1.5% each year. That accounts for a lot of money you’ve invested in inventory that’s just gone.
What to do: It may cost you money in the short run to put policies and equipment in place to save you money from shrinkage in the long run. Consider:
- Physical barriers. This can mean placing items out of a customer’s reach, using security tags on items, and even hiring security guards.
- Increasing the use of technology. This is a preventive measure. For example, consider installing a security system that uses AI video-based analytics. Increasing the use of technology can also be securing your website for ecommerce activities.
- Press charges against offenders. This is something to do after the fact. If shoplifters or employees know there are consequences if they steal from you, they may look elsewhere. Of course, DAs in some locations won’t prosecute, so another step to take is supporting DAs who will.
3. Nuisance lawsuits
A few years ago ,it was reported that nuisance lawsuits—cases based on a variety of minor offenses--largely targeted small business. Why? Big companies have a bevy of attorneys to handle lawsuits of any kind, while small businesses are more apt to settle in order to avoid the time and cost of lengthy legal wrangling.
What to do: As with other hidden costs, you probably have to pay up front to prevent larger costs that could arise later on.
- Understand the risk of nuisance lawsuits. Be sure your business is compliant with the Americans with Disabilities Act (ADA). A few years ago, there was an attorney trolling restaurants in my area to measure the height of a mirror in the restroom to see whether it violated the dimensions demanded by the ADA. The restaurants settled (they probably didn’t meet the exacting requirements), so it was lucrative for the attorney and his “client” and costly to the targets.
- Consult a business litigation attorney. He or she may be able to identify potential issues that could lead to nuisance lawsuits.
- Check your insurance. Learn what it does and doesn’t cover. You may be able to make adjustments as needed.
There are other hidden costs that deplete profitability. One is the cost of regulatory compliance. The cost for complying with documentation required by federal, state, and local authorities, as well as for insurance and other purposes, can be mind-numbing.
In future blogs I’ll try to address some other hidden costs you may face and not even know it.