Nobody would willingly harm the profitability of their business, but – unconsciously – many business leaders and managers are doing just that, every single day. Business owners often strive to do the best for their company, but without the proper tools are effectively reducing what could be a larger profit margin.
To help you and your business avoid these profit-damaging pitfalls, we have compiled a list of the three top profitability killers which are harming your business. Keep reading to learn how to reduce their impact.
Profitability Killer #1: Poor Time Tracking
For modern business owners, the primary cost of their organization is labor. Unfortunately, many accounting departments have not yet made the shift into the modern age. They carefully track the exact materials cost of each individual order, recording it alongside the revenue received from the eventual sale of the product. Labor costs are of course recorded additionally, but they are not attached to the order with the same precision as materials, which is a big mistake.
If profitability is to be protected – or even measured at all – the upper levels of an organization must be able to assess which projects are making money and which are losing money. Understanding and keeping track of labor costs is vital to maximizing revenue. It is important to adopt a more fluid approach to accurate time tracking within your business. The methods you use to track your employees’ time must reflect the way in which you do business.
Profitability Killer #2: Incorrect Billing of Clients
Services are provided to a client, followed by an invoice, which is then paid by the client. This will be a familiar process for a large number of business owners, but even this seemingly basic dynamic is fraught with dangers to your profit margins.
The primary danger is in the invoicing itself. The client is only obliged to pay the amount delineated in the invoice; so if that amount is incorrect, the payment you receive will be incorrect, too. This may seem like an obvious statement, but startling numbers of organizations are getting this wrong at a systematic level. Questions surrounding the efficacy of the ways in which the Department of Defense bills its contractors led to the creation of the DCAA – or Defense Contract Audit Agency – which oversees transactions and ensures that accurate payments are made. (Read about the Journyx DCAA Toolset for compliance here.)
Robust protocols and good management are key to eliminating this danger. Implementing a policy of accurate timekeeping and recording work for clients may require an initial capital outlay to cover training and equipment, but it will secure your profits in the long term.
Profitability Killer #3: Failure to Optimize Your Team
A good manager can recognize a certain skillset or aptitude within an individual; a great manager is able to position that individual in a way that enables them to utilize and contribute those skills for maximum impact. This is what all business owners want; a well-drilled, keenly-honed team, each member of which has the unique attributes required to succeed.
Unfortunately, this is usually not the case. Instead, projects are often assigned on an impersonal basis, with each new task or job assigned to the next available team. This approach does not take into account the unique elements of each project, the skills of you team members, or the scale of the work required. The result – more often than not – is that some teams get the luck of the draw with a series of shorter projects, and spend the remaining five or ten hours of each week out of commission, while other teams are forced into overdrive in order to complete their work on time. The knock-on effect of this imbalance is wasted expenditure on inactive employees, and substandard results from overworked employees.
To combat this, you can adopt a more personal and thoughtful approach to workflow management, ensuring that the right projects are matched up with the right teams. This also helps to balance the workload of your employees, boosting efficiency and quality across the board.
Where Does Your Business Stand?
If you identify with any of these three scenarios, you could be unknowingly leaking profits. By keeping a close eye on expenditure, on hours worked and on accurate invoicing, you are shoring up the profits of your organization and protecting them from harm. Implementing software that enables you to track time and expenses within your organization as accurately as possible and manage your project resources effectively and efficiently is the first step in gaining these valuable insights.
Here are some additional resources to help you to evaluate timesheet solutions and develop better processes: