There are many ways companies can lose money. Here are 10 of the most common causes of loss and how to prevent them.
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Refunds
If too many customers ask for their money back, it can eat away at your profits. Customers can ask for refunds for various reasons, but in almost all cases, a product/service didn’t meet their expectations. Putting in place quality control measures and improving your return policy are two ways you can reduce refunds.
Chargebacks
Chargebacks occur when a customer disputes a purchase with their credit card provider. The credit card provider then reverses the transaction. Like refunds, chargebacks can cost companies a lot of money. If you’re a high-risk merchant, you must get chargeback protections to limit these losses.
Miscounting errors
Many companies can lose money through miscounting errors. This can include accidentally giving back too much change or accidentally overpaying staff members. Going cashless and automating staff payments is one way that some companies combat this.
Unprofitable discounts
When offering customers discounts, it’s vital that these discounts are still profitable. Think carefully before slashing prices, and ensure that things like loyalty point systems or membership discounts aren’t too generous.
Expired stock
Items like food products, paints, and even printer ink have an expiry date. It’s important to use/sell these items in good time so they don’t expire. Using day dot systems and offering promotions on items nearing their expiry can help to reduce expired stock. You should also think carefully as to how much stock you order so that you don’t go overboard.
Damaged products
Damaged products often cannot be sold or have to be heavily discounted, which can also result in losses. Storing supplies in the right conditions is essential to avoid product damage. Make sure also to hire a reliable courier and use good quality packaging to avoid products getting damaged in transit.
Lawsuits
Lawsuits can cost businesses thousands of dollars. There are many reasons to file a lawsuit, but typically it comes down to not sticking to promises or accidentally injuring someone/damaging their property. Creating legally tight contracts, taking stringent health and safety measures, and not promising more than you can realistically achieve are all ways to prevent lawsuits. Taking out insurance can, meanwhile, help to pay for lawsuits that are unavoidable.
Unnecessary loans
Some loans can be a form of investment – such as buying expensive equipment that will eventually help you to make money. Other loans can simply be the result of poor budgeting or to afford luxuries that you don’t need. Make sure that you’re not over-relying on these types of loans, as you’ll end up losing money in the long run through repayments and interest fees.
Theft and fraud
Theft and fraud can result in huge losses for businesses. This is why it’s crucial to invest money into security when starting a business. Make sure that any physical premises are alarmed and monitored, and use reliable security software and cloud backups. Security measures like employee background checks can also reduce crime from within.
Unplanned downtime
Equipment faults, personal illness, or power cuts can result in downtime in which you cannot serve customers. This, in turn, can result in a loss of income. Plan ahead to avoid loss of income in these situations, such as servicing equipment, taking out income protection insurance, and possibly even buying a backup power generator.
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