Business financial leaks are the reason why your business expectations and set goals don’t match your profits. You should be able to identify your business financial leaks if the above statement is true. Business financial leaks will hamper the advancement of your business growth, expansion and financial freedom.
One of your greatest focus in driving your business forward should be the ability to identify and address these leaks or waste. Where could these business financial leaks be?
Every business has people and culture, procurement and supply chain management, inventory management, and processes. If not properly handled these areas will cost you your business profits and definitely affect your business financial freedom.
How would these become business financial leaks?
When people have wrong tools, performance indicators are unknown, no training, no learning moments of sharing best practices, people aren’t responsible for the business’ success and managing costs, they possess an ‘I don’t care attitude’, they are understaffed, and have a culture that doesn’t’t enhance value. Leaders don’t define or reinforce values, priorities aren’t defined or adhered to, it’s all talk but no action, there is poor customer service and people are treated unfairly.
You will definitely have unnecessary cost overruns, out of control expenses, poor quality and service delivery, uninformed decision making that will cost your business in profits. People, Culture, norms and philosophy greatly impact business efficiency.
People are a significant expense for many businesses and one must manage them carefully least you lose more money than you would save.
Business will require to procure goods and services, this process of acquiring is called procurement. While supply chain management is the extensive infrastructure needed to get these goods and services, poor procurement and supply chain management practices will cost your business revenue hence a business financial leak. Poor quality goods at a high cost, wrong specifications and requirements, vendor failure to do business, lack of performance indicators, accidental orders, lack of competitive bidding, use of the same vendors for several years, no framework agreements, all these will result in you not getting the best value for money and the best market rate in turn costing your business revenue.
Whether you are running a retail shop, restaurant, hardware, and boutique or build machinery, you must manage your inventory and supplies effectively to maximise your business profits. Having sale offers, giving free meals, getting rid of extra materials, not paying attention to your office supplies and consumables and generally keeping poor inventory control in your business will leak considerable amounts of revenue.
Business processes are a collection of linked tasks that lead to service or product delivery to your customers. Knowing how effective a process is, and understanding how the process adds value for the business and your customer are two different things. People are trained to use a process, but the current process in place may not be the most efficient way of accomplishing the business goal hence costing the business revenue. Take an instance of poor financial management and accounting, you will not be able to identify deductions that you can claim on your taxes annually.
Lean identifies waste as defects, over production, waiting, non-utilised talent, transportation, inventory, motion and extra processing. These if not properly managed will cause the business losses. Waste must be identified in a process in order to be eliminated.
Make it visible, be conscious of it, be accountable, measure, eliminate or reduce it. For critical change to happen detection and management of business financial leaks must be deliberate. People must see the impact of their decisions, through consistent and continuous engagement by leadership.
Dr Jeanpo Olowo is an advisor/consultant at Financial & Business Operations. [email protected]