Profit Leakage: You Have It, But You Can’t See It
In any business, but especially small business, lost revenue, lost profits, and lost opportunities can have a devastating effect. I use the phrase Profit Leakage to encompass all three.
Most people go into business to make money, right? Not necessarily. Many of my clients are mission driven. That is, they are motivated more by the creation and deployment of their unique expertise than by making money. They see success as the delivery of their product and service to their customers and clients, and they assume that the money will come along for the ride.
Is being mission driven a detriment? No, not at all. But one must make money in order to stay in business and continue delivering on that mission. When businesspeople don’t understand the notion of making money, they skip many of the tried and true business avenues for creating profitability. That means they don’t pay close enough attention to the ratio of incoming and outgoing money, and profit leakage is the result.
A classic metaphor for profit leakage is a dripping faucet somewhere in your house. You know it’s there and that you should address it. But since you only encounter the problem occasionally, you don’t really feel any consequences for not fixing it. Once that drip becomes a steady stream or causes a mold problem under your sink, you’re forced to deal with it at multiple times the cost of having addressed it proactively.
In my experience, the most common dripping faucet is a business owner’s time. Over and over again, I see entrepreneurs and business owners give away or discount their time. Our time has value, and that value has a number on it. Far too many business owners avoid calculating what their time is worth for reasons based on fear or false logic:
• I don’t believe clients will pay what this is worth
• I need to prove myself this time to justify charging next time
• I don’t believe my target client can afford me
• I’m not sure I worked hard enough to earn my price
Living in this emotion-based reality prevents entrepreneurs from working with facts and defined numbers and data. They consequently martyr themselves by working too hard for not enough pay and self-fulfill their baseless undercharging arguments as their work deteriorates in quality, efficiency, and accuracy. The profit leaked by devaluing their time compounds into major loss. The trouble with being a martyr is that martyrs typically lose everything and die. Business by martyrdom is not a good model!
So where else do we find profit leakage in a business? It literally can be everywhere! On the revenue side, it’s bad or outdated business models or low margins built into our products and services. Profit leakage lurks on the expense side in poor vendor agreements or relationships, forgotten unused subscription services billed chronically, and non-managed inventories. In daily operations, profit leaks happen with duplication of effort, lack of controls, and zero policies or procedures to guide commerce smoothly.
Profit leakage doesn’t go anywhere, it just bleeds cash – your cash! In order to fix it, you must stop and address each issue intentionally and carefully like a detective. When you find a leak, ask open ended questions and probe deeper until you find the source. This is where business advisors like me come in.
We don’t have an emotional attachment to your business, so we look through an unbiased lens to help you locate the leakage. We help you match realistic value to your time, maximize your margins, streamline your expenses, and automate your operations. To complete the faucet metaphor, we show you how to use a wrench so that you can stop potential leaks before they start in the future.
What’s stopping you from assessing your business for profit leakage? If you know you need to start looking, but you’re worried about what you might find, let’s chat. I help mission-driven owners uncover solutions to generating more profit without compromising integrity.