A business without profits is like a vehicle without wheels...
But unlike a car bought from a dealer, which already has wheels, a startup business has to make its profits (wheels) bit by bit - until it reaches such momentum (hopefully!) that it starts growing and growing and growing...
Unfortunately, just like in the real world of cars, there are thieves out there looking for an opportunity to steal the wheels off your business. I call it the threat agents in and outside of your business (i.e. your business risks). To achieve REAL high growth and business success, you have to pay attention to the threat agents in and outside of your business, eating your profits and ALSO constituting your risk of business failure!
I am going to provide one short example. Please keep in mind that this is only ONE example out of perhaps millions and millions of profit erosion scenarios and that this is NOT a detailed discussion concerning the proper business controls needed to counteract this specific profit erosion (risk) agent. I just want to show you what I mean by saying that you need to protect and grow your business by putting a stop to profit erosion in your business.
Example:
You probably get them in every business. The girl or guy who has been working in a specific department or section for, well, years and years. Nobody knows exactly for how long. Mary/Bob usually knows EVERYTHING (and I am not sarcastic) about her/his job (even more than the manager or business owner)!
Now this could be positive AND negative for a business.
Unfortunately, in most cases, a business depends so heavily on a Mary or Bob (remember, she or he knows everything) to get things done (you know, you tell yourself every time: "If I could only have two Maries or Bobs") that only the positive advantage can be seen.
But here are TWO NEGATIVES (and causes of profit erosion) as well:
1) Lack of knowledge transfer between employees Let me ask you: What happens when the day finally comes when Mary/Bob is not at the office (regardless of whether she/he is sick, dead or retired)?
Chaos, chaos, chaos... No one knows how to do the job Mary or Bob has done for years.
Why?
Because nobody was appointed to go and learn from Mary or Bob; there has been no knowledge transfer at all.
And how does profit erosion take place? Well, it is obvious; with no one capable to do Mary or Bob's job, no production will take place.
Let us say that Mary/Bob did your company's salaries - she/he was the head of the department. Without Mary/Bob you are going to miss the deadline (i.e. the date your employees are used to get their salaries on) and you are heading for a disaster...
Many employees are worried or angry or start talking about leaving... AND yes, job performance goes down the drain - from production to billing to customer service. The end result could be, for example, unsatisfied customers, and eventually a loss of current customers or even potential customers... and yes there goes sales income too.
2) Fraud This is an area mostly overlooked by small and medium business owners and managers.
FRAUD!
As an ex auditor I know that a Mary/Bob could be an indication of a RED LIGHT. An employee, sitting for years in the same position, knowing ALL the ins and outs of the position (better than anybody else) COULD create an opportunity for fraud - and EVEN the manager or business owner would NOT be able to detect it!
And how does profit erosion take place? Fraud usually creates an illegal outflow of resources (no matter whether it is money or other resources).
And what is the solution for our scenario?
Of course, profit protection strategies and PLANNING!
How?
By putting a plug in the profit erosion hole!
With what?
Countermeasures (business controls). For example, job rotation and knowledge transfer between employees. However, you will need to implement a proper company policy enforcing the necessary procedures, standards and business structures giving effect to job rotation and knowledge transfer activities (otherwise it will never happen!). This is, however, an entire subject on its own; discussed in detail by me in my e-book - "Survival Kit for Small and Medium Businesses - Profit from your Business Risks!"
In the end, you would turn risks into opportunities to protect your business and its profits! And then you will be in a better position to grow your business!
Profit Car - To learn more about this author, visit Michiel Jonker's Website.
Like this article? Share it with your friends
 |
Related Articles |
|
 How To Make $1 Million in Your Small Business
|
| |
Is it possible to make $1 million dollars profit from your small busines? Good news. It's not only possible, it's common. Want to know the "secret"? Understand your break-even point, your desired profit margin point...
|
|
Impress your bank manager! How to read your profit & loss account report
|
| |
If you are relatively new to the business arena, you’re probably not too good at reading financial statements. But for someone who is planning to start a small business, it is crucial to learn how to read fin...
|
|
A sinking "Titanic"
|
| |
Perseverance is one of the main requirements for a small or medium business owner who wants to be successful in today's complex business world. However, it will not help you as business owner to persevere while sail...
|
|
4P Screen For New Clients
|
| |
A recent issue of Fast Company, a magazine for small-company CEOs, recommends screening new clients based on these 4 Ps:
|
|
What Drives Your Economic Engine
|
| |
Are you struggling to attract more new customers to your business? Do you see your competitors growing and wonder what they are doing to be so successful (even though you know their product or service isn’t nearly a...
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
