Don’t lose a Ferrari or A House through the Back Door

Every business has some form of leakage. Even my own. All business people know this, but sometimes it is just too hard to fix. You see, if we knew how big the leakage is we might start crying like a baby and actually do something about it.

So here are a few questions for you

  1. Do you know what leakages you have in your business?
  2. Do you know exactly in dollar value what that is costing you?
  3. And if you do what the heck are you going to do about it?

A couple of weeks ago I visited a friend of mine who runs a sizeable business with his very extended family. Over the years I have provided free ad hoc advice (as friends do) as and when required. This would normally happen over a few whiskies. Or in our case quite a lot of whiskies. Once we drank so much that MasterCard cancelled my card thinking it had been stolen. But I digress.

Now my mate is a very good intelligent businessman whose family has been in the retail trade for over 30 years. Over the years they have done very well and the business has grown considerably. And over the years I have advised him that various parts of his business are actually leaking money.  He would then ignore my advice, laugh it off and have a few more whiskies. This was very annoying.

The business was running well, but the systems and procedures were outdated and it was just too hard to get all members of the family to agree to change.

One area I was convinced something was not right was the system of employees and in particular the number of employees and the how they were paid. In fact, I have been telling them about this for 15 years.

Eventually someone in the family woke up one morning and did something about it. What they found almost gave them a heart attack. An immediate re-organisation was undertaken and long standing shop managers were moved to other stores. It was only then that the business found out that they had been paying wages to employees who had left or paid for hours not worked. It got worse. Some employees simply did not exist, but had been paid for a few years.

I then fired up Mr Iphone and my rudimentary calculations worked out that they had probably overpaid over $600,000 in wages the last 10 years alone. In other words the equivalent of a Ferrari or a four bedroom sized home had leaked out of the back door. Now I found this very funny, but as you can imagine I did not get the same reaction back. A few more whiskies later we discussed what it felt like to lose a house or a Ferrari. The mood was not good. So we just decided to drink a bit more.

Therein lies the problem. They did not bother to look into it or fix it. I do not believe that if they had performed some dollar amount calculations ten years ago that they would have left matters as they were.

There’s more. Over the years I have also found that inefficiencies in any business will leak money like you would never believe.

That is why every week in my business, we have a weekly meeting and one of the agenda items is inefficiencies noticed in the last week. If we find one, we kill it. Instantly.

Inefficiencies have the potential to put you out of business. At best it means less money your pocket and last time I checked most business people are in it for the money.

So here is a small checklist on how to stop leakages.

  1. Foster an environment where your team members are encouraged to discuss inefficiencies and then take action on them. Employees hate it if you just ignore their recommendations. Besides, they are doing you a favour.
  2. If you are using the same systems and procedures when your Grandpa started the business you can bet your bottom dollar there are a lot of inefficiencies and leakages. Some procedures and practices have to be only a year old to be outdated. Review your practices to see if they are right for your current business environment.
  3. Try to cost the inefficiency. Sometimes it is easy. For example, we made a decision that all mail unless absolutely necessary will be send electronically. This saves cost in stamps, and time going to the post office. It can be costed. Sometimes you just have to guess.
  4. Do something about it! Sometimes we know about the first three, but because it is too hard, we just shrug our shoulders and ignore it. Do this at your peril.

Finally, once I had sobered up from the whiskey I was sent my mate a Ferrari brochure and told him to leave this on his desk permanently. Nasty I know, but it should ensure that another Ferrari doesn’t leave the building.

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