How to identify and deal with invisible costs

You meet a friend over a drink or dinner at your cost to discuss a possible business bailout because some things cannot be discussed on phone.

Your office operations stop for an entire day because there is no power and you don’t have a generator. An order is cancelled because goods were not delivered on time.

A number of stock items are spoilt due to poor storage while others are stolen by employees. You fail to claim expenses from the Kenya Revenue Authority because some payment receipts cannot be traced.

These are some of the costs that most firms incur that are never captured in their profit and loss account because they are intangible.

They are called invisible costs and they are responsible for most business losses and even failure.

Other costs that are unseen include those associated with over stocking, dead stock, loss of customers due to poor service, loss of business due to delay in quotation, stock outs, loss of money due to poor data storage, and staff inefficiency.

Unlike direct costs such as stationery, marketing and electricity, tracking intangible costs is an uphill task because they cannot be seen and quantified.

Yet they are the most important costs that more often than not determine the growth and profitability in a firm. They also form a big part of overall goodwill and brand.

For instance you cannot tell how much sales you lose because of poor customer service. When an order is not delivered on time or is cancelled the customer may not buy from your venture again and neither will she refer others to you.

A customer who fails to find an item in stock after walking a long distance to your shop may think twice before coming for the third time even after you restock. The level of trust drastically drops.

So how do you tackle intangible costs?

You have to be in control of your business and as close to your customers as possible. Put systems in place to monitor everything that goes on to ensure smooth operations.

Get feedback from customers to know their level of satisfaction. You can conduct regular satisfaction surveys.

Keep a list of your customers and when they don’t come or come less often find out why. Study how other players in the sector are doing and benchmark.

Ensure you have optimal stock levels to avoid overstocking and stock outs. Take good care of inventory to ensure minimal damage as well as theft from both staff and outsiders.

Create a culture of lean operations that discourages waste of materials, time, opportunities and human resources.

Find ways of reducing finance cost by ensuring timely collection of debts. You don’t have to borrow money from banks or friends when your customers owe you hundreds of thousands or millions in overdue payments.

Mr Kiunga is a business trainer and the author of ‘The Entrepreneurial Journey: From Employment to Business’. [email protected].