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Hidden costs that are busting your profits

By Mark Lawson, Director of Treasury Management

Enterprise Bank & Trust, Member FDIC

The never-ending quest to boost your company’s financial growth and profitability has many obstacles — regardless of the size of your business. 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. When you get the chance to step back to consider them in total, you realize they can add up — fast.

While every business is different, there are common financial hazards that siphon off profits, bit by bit. In an era of tight margins and aggressive competition, these “small” profit busters can make the difference in you gaining a competitive advantage. What are the most common profit busters and how can you take action to put your money back where it belongs?

Taxes

Tax laws change and so does your business situation, which means a periodic and thorough review of your tax situation can save a little – or a lot. 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.

Inadequate Accounting Procedures

The day-to-day demands of running a business requires spending money. And your bookkeeping procedures have a major impact on your bottom-line. A good example is considering when to capitalize.

Capitalization – expensing costs over the life of the asset rather than in the period it was incurred – is an opportunity often overlooked when considering significant purchases. Capitalizing generally takes place with bigger assets such as computers, equipment and office buildings. This happens when purchases are recorded as assets and expensed in the future so they do not count against earnings in the current period. As the asset generates revenue, some of the cost is written off.

Inadequate accounting procedures can be wasteful and cost your business money. Your financial partners can offer you tips to optimize your accounting function to help boost profitability.

Unprofitable Clients

An unfortunate fact in the business world is that you are going to come across unprofitable clients. There are many reasons a once-promising client can turn into a financial drain on the business.

Fixing these situations can be one of the most direct ways to positively impact your bottom line.

Fraud

An Association of Certified Fraud Examiners study estimates that typical organizations lose an average of 5 percent 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.

Running a lean organization is important to any size business. To this end, often small business owners entrust a great deal of responsibility in one person. But giving one employee too much access and control can leave you vulnerable to fraud. Whether you have an accounts payable department or one individual paying the bills, consider implementing dual control on payments. This system of checks and balances will decrease your potential for fraud.

Another great way to protect your business from fraud is by working with your bank’s treasury management team to implement positive pay, ACH debit filter and automating your accounts payable process. Your banker can help you determine the best solutions.

Operational Inefficiencies

Take the time to review your operational processes to see where inefficiencies lie. Your bank’s treasury management department is, once again, a good source for operational solutions. Working with your banker to set up an automated payables system can not only protect you from fraud, but it can also make you become more efficient and reduce costs.

Here are a few of the benefits of this profit-boosting treasury management feature:

  • Reduce your accounts payable and payments process by up to 60%.
  • Transform your finance and/or accounting team into a revenue generator through monthly credit card rebates.
  • Improve control of managing invoices, streamlining approvals and generating electronic payments.
  • Save you and your finance/accounting team valuable time so you can focus on other things.

Employee Turnover

While employee turnover is a fact of life, it 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. According to a study by the Society for Human Resource Management, employers can spend the equivalent of six to nine months of an employee’s salary to find and train their replacement.

On your next hire, consider tracking this time. Include things like revising a job description, posting the job, reviewing resumes, interviewing and all the aspects of onboarding and training (including the time of the staff conducting the training). While all these pieces must happen, look for opportunities to consolidate or simplify these processes.

Lack of Marketing

Marketing budgets always seem to be an easy target when it comes time to tighten the belt. But if profitability is the motivator, why cut budgets to the discipline that feeds the sales machine – especially when in startup mode where marketing can make all the difference?

Marketing efficiency and productivity are really about the right mix of marketing tactics to meet your growth objectives. You should have a marketing plan that outlines your goals, clearly demonstrates how certain marketing tactics help achieve those goals and puts in place a plan to measure results so you know what is working – and what isn’t.

To learn more about hidden profit busters, download the full white paper, Hidden Costs That Are Busting Your Profits, at www.enterprisebank.com.

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