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Business Management 101: How Much Are You Losing To Shrinkage?

By on November 1, 2014

Shredded moneyNo matter what industry you work in, shrinkage is a problem. It can eat away at your profits, interrupt your daily business, choke up your cash flow, and alienate your customers with rain checks and back orders.

In some cases it’s not the big hits that sink you, but the slow and steady losses that end up swamping your business at the worst possible time.

In hard times a business that’s healthy is going to struggle, but one that’s been slowly leaking inventory and cash is going to go down like a rock. Get your inventory in shape, and choke the shrinkage!

It’s Your Money

So let’s say you start off every business day by burning a pile of cash in the parking lot, then you put a ball and chain on your ankle and drag that around with you for the rest of the day.

Then, before you go home after closing of your business, you hand out a bunch of merchandise for free. That’s what you’re losing to shrinkage. It’s a sound metaphor, and not hyperbole. If you are losing merchandise, you might as well give it away for free and burn a pile of money, too.

Every business experiences it, but not everyone does something effective about it. You could invest in security cameras and the whole connecting security system that does everything but beam you into the business when something goes down.

However, cameras can only tell you when something’s gone down. With the right information, you won’t need to keep your eye on that camera.

But Why?

Most businesses fail. That’s the hard truth about starting a small business. According to Statistic Brain, 25 percent of small businesses, that’s one in four, will fail within the first year. By year five, 55 percent of businesses will have closed their doors and by year ten that number jumps to 71 percent.

This means that less than two businesses in ten will survive for a decade. These can be daunting odds, to be sure, but they are not written in stone. In the same study, the most common reasons for failure were listed as:

  • Incompetence. It’s a hard word to hear, but as defined within the study it’s easy to see how the factors that define incompetence could lead 46 percent of business to fail.

    Emotional pricing, no knowledge of pricing structure, lack of planning, ignorance of financing, no experience in recordkeeping, nonpayment of taxes, and treating the business like a piggy bank instead of a business can all result in the doors closing before the first year anniversary.

  • Unbalanced experience or lack of experience is defined by having experience in one area, but not another or no experience at all. This leads to poor credit risk management and expanding too quickly. Practices like these account for 30 percent of business failures.
  • Lack of experience in line of goods or services can lead a business to carry inadequate inventory, far too much inventory, or have no knowledge of suppliers within their given industry. 11 percent of businesses will close their doors for reasons like this.

Only 1 percent of businesses will go under due to neglect, fraud, or natural disasters, but that is enough to be a staggering number all on its own. Giving your business the best odds that you can means getting the information you need and applying it.

This is why controlling your shrinkage and using inventory control methods such as barcoding is absolutely vital to the health and future of your business. The technology has become more widespread and is thus more affordable than ever, with even eCommerce platforms like Shopify.com offering the equipment to their subscribers.

It’s a canny way of helping the businesses online stay in business, and even the Houston Chronicle agrees that small businesses implementing these types of systems can, in many cases, stop or significantly reduce their shrinkage.

Mobility is King

A tablet-based or laptop-based inventory system is lightweight and inexpensive enough to be taken around to whatever locations you might need it. Using your laptop, a barcoding scanner, and a barcode label printer, you can get your stock under control.

You might even, according to Microsoft, reap additional benefits in saving time that allows you create a more valuable customer service experience. Getting your staff out from under repetitive and sometimes even redundant tasks associated with servicing inventory will save you time and help you avoid frustration.

Your customers will benefit from improved order fills, more rapid pulling and shipping, fewer backorders, and less invoicing errors. The experience on all sides of the equation is one that is firmly in the plus column.

While implementing a system and policies that will enable you to stay on top of your inventory can sound daunting the value returned for the effort might just be passing your ten year anniversary and being one of the two in ten.

 

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About Elechi Emekobum

Elechi Emekobum is into health & social care profession. She loves blogging, content writing, social media, branding, travelling, gadgets and health products. Check out her other articles on HotelsRepublic.com | Platterofgold | Adeyemiadisa.com!

One Comment

  1. Veronica Marks

    September 18, 2015 at 10:47 pm

    Wow, those statistics about how many businesses don’t make it past ten years is a bit startling! My husband is looking at starting a new business, and learning about things like this helps us have a better idea of what to do and not do. We will definitely examine all the ways we might fall prey to shrinkage a lot more carefully now!

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