A potential customer walks away without buying after a bad experience with one of your employees. Your deliveryman cannot find a delivery address, so he returns with the customer’s order. Inventory at the back of the storeroom lies unused and unsaleable. A manufactured item fails a quality check and has to be remade.
Clerks spend time reconstructing lost information. These and other failures cost your company a lot of money, and yet the cost is almost invisible. These are the intangible costs for which you do not get invoices, yet they are often a substantial part of the total costs of running a business.
Intangible costs include overstaffing, overtime, overstocking, excessive transport costs, scrapped material, excessive rent, and loss of profit from lost customers and lost sales that should have been made. Moreover, few raise alarms or are subject to intensive cost-cutting drives, simply because unlike direct costs, nothing highlights their existence.
To illustrate this point, imagine a scene where every lost sale generated an invoice for the loss of profit. There would be a predictable response to improve competitiveness and service, but the lack of visibility of lost sales makes this response unlikely.
The loss of profit is as real as the cost of wasted stationery, but seldom gets as much attention.
Tracking intangible costs
Anything affecting customer satisfaction may mean lost customers, lost sales and fewer referrals. Examples are missed delivery dates and sales lost because you have run out of stock. Do you know how many customers have stopped buying in the last year, and why? Do you do regular customer satisfaction surveys?
Second on the list is rework, and not just of manufactured items. Repairs that were not made properly the first time and have to be redone, or time lost finding or recreating vital information that should have been readily available all have a real effect on a business. How often do you fix errors made because staff are unfamiliar with procedures? Doing things over is costly and demoralising.
Direct financial losses may also be hidden. For example, delayed payments by customers because of queries with the paperwork will incur interest costs.
You may have discovered stock items lying unused while new orders are placed for the same items, or find that the wrong items have been ordered and never returned, but these costs are buried in material purchases.
Machinery or vehicle breakdowns due to maintenance neglect can be expensive, but are included in service and maintenance costs. Abuse of sick leave may generate unnecessary overtime. These significant costs may go unnoticed, unlike an unexpected direct cost where the payment request will usually be queried.
Measure and reduce
When you start tracking these issues, you may find that your staff do not regard them as important. Create a culture of lean operation, where any waste of material, time, space or opportunity is addressed. To do so, you have to build an organisation where it is acceptable to make a mistake and learn from it, so that people are not motivated to hide their errors.
Start with some simple measures: Watch for obsolete stock and stock shrinkage like a hawk. Track rework of all types, including deliveries sent twice, re-invoicing and manufacturing and repairs needing to be redone.
Analyse the causes rather than allocating blame; you may need to do more training or supply better materials or systems. Institute rigid maintenance schedules to reduce breakdowns. Track lost sales and encourage customers to report bad service.
Finally, avoid loss of institutional knowledge. If you retrench the long-serving clerk or storeman, the savings could be wiped out by costs such as making wrong parts or upsetting established customer routines.
The Simple Way To Pay Wages When Your Staff Don’t Have Bank Accounts
If you have employed casual workers over the busy season, you can pay wages even if they do not have bank accounts.
At Absa Business Banking, the things that are important to you are just as important to us. We understand your business needs, which is why we have developed tailored solutions to help you where it counts. Take CashSend Plus, for example. It is a payment solution that enables you to pay workers even if they do not have bank accounts.
It is safe and secure
Your employee will receive a six-digit access code and a ten-digit reference number, so that they can verify the transaction. The money is instantly available at an Absa ATM.
You can even pay yourself
We have all lost bank cards or wallets at some point in our lives. What an inconvenience. Well, it is good to know then that you can access cash by sending it to yourself. Now, that is what we call better.
Please speak to one of our consultants or call 0860 111 123 or visit your nearest branch.
Absa Business Banking
Do better business. Prosper.
Entrepreneurial Balancing Acts with Debt
Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders.
Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders. Unfortunately, many South African entrepreneurs are limited in their ability to access capital markets. Among others, the major challenges facing entrepreneurs include lack of credit history, no collateral, shaky credentials, and unformulated business plans.
Regardless, SA entrepreneurs are forging ahead and using multiple resources at their disposal such as payday loan providers, non-bank lenders, family and friends, crowdfunding and other economic empowerment initiatives to raise the necessary seed capital for investment purposes. Given the staggering unemployment rate in the country (+25%), the only way out for many people appears to be entrepreneurship. The 2008 global financial crisis threw the economy for a loop, and now the hopes and dreams of many South Africans hang in the balance.
ISM Study Sheds Light on SA Entrepreneurial Pros and Cons
An intensive study conducted by the University of Cape Town’s Unilever Institute of Strategic Marketing (ISM) found that the country is experiencing ‘a crisis of aspiration’. Simply put, many South Africans are struggling to attain their career objectives in an economy that has been ravaged by corruption, mismanagement, and scandal. Despite tough economic times, South African entrepreneurs are determined to try their luck. Pressing challenges in the form of rising unemployment, and an economy mired in failure are challenging entrepreneurs to be more inventive than ever before. The most volatile component of the economic spectrum in South Africa is the middle class.
Many South African families have lived the high life, or ascended the rungs and then been knocked down a peg. This instability is creating added volatility in a country where high crime, mismanagement and political rancour pepper the scene. For many entrepreneurs, any access to credit is a godsend. Banks and non-bank providers offering personal loans, business loans, or credit card funds invariably expose themselves to debt default. For entrepreneurs, it’s important to know where to draw the line. Access to lines of credit in a crippled economy is significantly more valuable than the equivalent access in a developed economy.
How to Know when you are Overstretched as an Entrepreneur
Debt is considered a prerequisite for investment purposes. Most South Africans simply don’t have the necessary capital to start up a high-tech venture, fund a new business, or conduct marketing and advertising activity. As such, lines of credit are increasingly being used to propel business activity among SMEs – both in the formal and the informal sector. However, once debt reaches untenable levels, the tough questions need to be asked. For example, if multiple loans and multiple payments are required monthly, revenue streams need to be evaluated against expenses to gauge whether this is a feasible status quo.
Related: How To Handle Your Post-Holiday Debt
Many entrepreneurs find it difficult to manage multiple loans simultaneously, although it is necessary to acquire the capital from multiple sources. One of the ways to deal with these types of exigencies is a single loan from a low-cost lender in the form of debt consolidation loans. Simply put, these loans are provided by bank or non-bank lenders at lower interest rates than the prevailing interest rate on other lines of credit. By taking out a debt consolidation loan, the entrepreneur has more disposable income over time by not paying the higher interest on credit card debt.
Escape Debt Before Debt Consumes You
There are several other ways to know when your personal financial situation has reached critical mass. For starters, the nature of your business may require you to continue dipping into lines of credit to maintain business operations. If you don’t have the requisite discipline to stop indebting yourself, you may not be able to get out of debt. Debt consolidation is only effective insofar as you have the necessary discipline to put an end to debt financing of all business-related activity.
Credit should be used sparingly, and profits should be generated to allow your business to prosper. In a tight economic climate, costs are the bugbear that need to be attacked. Lavish trappings are unnecessary for business functionality – modest budgets, and high-quality goods and services are far more effective than window dressing at a premium.
How South Africa’s Small Businesses Plan To Invest Their Money In 2018
Here are their five areas they should focus their attention on in the next year and beyond.
Despite economic uncertainty, South Africa’s small businesses are positive about the future. In fact, our State of South African Small Business report reveals that 40% of small businesses are expecting to grow. However, to achieve growth without overextending their limited resources, small businesses need to invest wisely.
Here are their five areas they should focus their attention on in the next year and beyond.
When times are tight, companies typically reduce their marketing spend. This isn’t the case for 36% of South Africa’s small businesses. These respondents recognise marketing as a critical investment area.
They’d rather make a concerted effort to grow their customer base, than sit still and do nothing as consumer demand declines.
Without access to the latest technology, business growth can quickly stagnate. This is why 23% of South Africa’s small businesses plan to invest in up to date equipment, whether that be new machinery, mobile devices or computers.
The right investment in this area can give a business a real competitive advantage.
It can help boost profits and improve operational efficiency – both of which can help a small business withstand difficult economic conditions with greater success.
Consumers are spoiled for choice. Their needs are constantly changing and companies can’t afford to become complacent. To keep up with market demands, 22% of small businesses plan to invest in product development. Barring a few timeless classics, most products need a regular review and tweak to stay relevant and popular.
Digitisation is transforming business functions across the board. Technologies, like cloud software can take care of laborious administrative work.
This liberates employees from time-consuming tasks, enabling them to focus on more strategic work like customer retention and acquisition.
Technology has the power to improve productivity and efficiency. Which is why 18% of small businesses are going to focus their investment plans on this area of their businesses.
The customer should always be the priority. It doesn’t matter how good a product is, if there are no customers, then there’s no business. As competition increases, the user experience becomes more and more important to win over customers.
Business growth depends on happy customers and to achieve that, 18% of small businesses plan to invest in delivering better service.
All five of the above business areas are worthy investment focuses. The question is, how does a small business work out what to invest where? The only way it can invest effectively is with a full view of its company finances. A small business needs to be able to see which functions have provided the best return on investment to date.
It also needs to consider how much investment capital it has to spend. What’s more, before it makes an investment in say, marketing or product development, it must know exactly how and where the money needs to go.
The right software can help a small business access the real-time insights it needs to make better, faster financial decisions. To combat increased competition and market uncertainty, South Africa’s small business owners need access to up-to-the minute information from any device no matter where they are. An informed investment has the greatest chance of success.
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