Small Business Information

4 Areas Where Your Business is Losing Money


In my 18 years of consulting I have heard it all. Everything from competition to managed care as reasons why it's hard to create the business of your dreams. New customers are needed to keep any business going but it is how you and your staff manage these customers that determines your success in business.

In every business that I have gone into over the years, what amazes me most is the amount of lost income from poor handling of the major income generating areas of any business. I will cover four of them.

The actual amount of lost income can be calculated. I will describe where you are very likely losing large amounts of money and why. These areas if handled will help you lose less money in your business or in other words, make more money.

Where am I losing money in my business?

Business owners are always looking for ways to increase revenue but we seldom address the areas where buckets of money may be slipping from your fingers. It is common to look at the cost of handling a situation in your office, but little attention is paid to the fact that not handling a weak area of your business is costing you way more than what it may cost to solve the problem.

You need to be able to measure the top basic areas and the way to do it is with statistics. How can you evaluate how close you are getting toward handling any weak area of your business or enhance an area already doing well if you are not using statistics? Operate off of statistics.

Most business owners commonly fail to look at what they are currently losing from weak business management and poor training of staff. Here are four of the key areas of lost income within the organization.

1. You can lose money with poor reception control.

Ideally, with proper reception control at the front desk, on the phone and certain procedural actions in place you can achieve a higher percentage of closed customers. To the degree that the control at the front desk is missing or the customers are dictating when they will come in or not, you will be losing money. A good receptionist is key to directing the incoming traffic, whether via phone or in person to the proper staff member quickly and with good control. This is quite honestly an easy fix and can improve your bottom line quite markedly.

2. You can lose money from having a poor collections ratio.

Depending on your business, once you make the adjustment in your production for other plans such as managed care, etc. you should be collecting 95% of the remainder. Ideally, when calculating your true collection ratio you would use the last six weeks of collections divided by the previous six weeks of production. There are actually eight areas, if fully handled, that will put your collections ratio in a whole new range.

3. You can lose money from having an untrained or poorly trained staff.

Take your average weekly collections divided by the number of Full Time Equivalents (FTE). Don't forget to include the owner's hours and if he or she works 60 hours that is a 1.5 FTE. Every staff member has value to the organization, but some are clearly more valuable than others. When you have a staff member that knows what to do, is very efficient in his or her ability to get the job done and somehow motivates others, you know they are worth their weight in gold. What is sometimes difficult to understand is that getting employees to actually do their job with a high degree of productivity IS attainable. Every time you hire someone within your organization you should have a certainty as to how much income per week they should bring to the table through their efforts. The average should be somewhere around $3,500 a week for each FTE.

4. You can lose money from lack of effective marketing.

Effective marketing is a big area where businesses fail. They usually plan their promotion like they plan their meals - one at a time. It pays to have a marketing plan and be able to correctly determine the ROI (Return On Investment) from marketing actions. Most businesses send out one promotion piece and then tally the responses, not the amount of money produced from those responses. This gives a false picture. Then business owners think that their marketing "isn't working" so they quit - just as quickly as they started. Likewise, when they quit, they do so not realizing that repeat mailings are the key to generating more responses and more income. Executives commonly do not "put themselves in their prospects/customers shoes" and look at their marketing from the customer's viewpoint. An example of this is taking a look at how you actually respond to direct mail. Do you jump at every mail piece that arrives in your mailbox? Or, more realistically, do you start to really take notice of a company's promotion once you have seen it repeatedly?

The marketing medium is something to consider as well. There are inexpensive ways to get started with marketing that will get you a good Return On your Investment and that will enable you to generate enough income consistently before you start branching out into other more expensive media. A postcard is a particular medium that works well for a number of reasons. I highly suggest finding a reputable direct mail postcard company that gives free marketing advice as your source for direct mail marketing. I would make sure that postcards are all they do, get references from them to investigate and call those references for data about that company. And remember, the absolute cheapest price isn't always the best - you get what you pay for. There is a lot to learn about marketing. It is a powerful tool to expanding your business.

This four-point checklist that can help you discover where your business is losing money. Each of these points can be improved when you apply the correct tools. I base the validity of those correct tools on whether they get results - not by my opinion - but whether they actually work no matter what industry you are in.

Jeffrey F. Lee is CFO and Co-Founder of Measurable Solutions Inc., a consulting firm engaged in all areas of business management. He has found that all the basic principles of how to expand a business apply to any business when delivered in a very precise way. With his partner, he has built the most rapidly expanding company of its kind in the world.

Visit his website at http://www.measurablesolutions.com


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