For profitable businesses, stock taking is key practice

Lawrence, a friend I have known for several years had been struggling in business for almost six years until last year when he had a breakthrough.

He had been operating in small, but expensive premises in town since he started his supplies business.

In 2013 he figured out that he could move to a cheaper and spacious premises in the estate. This would also save him and his staff money in terms of daily bus fares, parking fees and meals.

He would only travel to town when it was necessary. After all, he reasoned, his customers hardly visit his office.

However, it was not saving money in this manner that brought about the breakthrough. When he moved his business to a four bedroom house in an estate near where he lived, he was able to control his stock better.

He locked his stock in one room which he was the only one with access to and put a limited stock in another room where only his dispatch clerk had access to as opposed to before when most of his staff had access.

After putting this control in place his staff started leaving one by one, apparently for greener pastures, including his two loyal workers who had been with him since the inception of the business. He could not explain why they left when things were getting better.

But he was soon to find out.

As he was struggling to teach his new staff, some so green that they could not find their way to where key customers were located in the city, he noticed his revenue was steadily increasing.

Apparently the two former workers used to take advantage of weak stock control to steal and collude with some customers to defraud him.

Now with the new system, their revenue was cut, such that they had to work extra hard to earn more in commission or quit. They chose the latter.

Based on my experience with small businesses, staff fraud is the single greatest threat to profitability and business survival.

The cardinal rule in business is never trust anyone with stock and money. Unfortunately, most business owners flout this rule all the time and pay dearly.

They entrust their stock, order processing, debt collection and accounts reconciliation to one or few trusted employees. Because they trust them and are usually busy, they don’t do thorough audit.

Apparently these are the people who milk the business dry. Such employees regardless of how much they earn, have few complaints and salary demands because they know how to make their money out of your business.

Usually they will not leave you unless limiting systems are instituted as in the case above.

In all businesses dealing with tangible products, stock taking is the key component in the profitability of the business.

No matter how hard you work in producing and marketing your products, if you are losing stock it is hard to drive business to profitability.

Working hard for your business but failing to take care of stock is like putting water in a leaky bucket. The more water you put in, the more it leaks and the bucket will never be full.

Before you inject more money into the business or spend more on marketing and promotions to increase revenue, seal all loopholes where you could be losing money in your business.

Mr Kiunga is the author of The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market. [email protected]