When it comes to thinking about loss caused by theft and error, many small business owners view their losses as little more than “nickel and dimes.” It is often alarming, that when some actually look deeper they see that the hidden impact is a lot bigger than one might suspect. Here is a little scenario to highlight that point.
Imagine that you run your business on a 100% mark up (or product margin). You buy your widget for fifty cents and you sell it for one dollar, a very nice fifty-cent profit on each item (for now we’ll ignore what else comes out of those fifty cents.). If one item is stolen then you’ve only lost fifty cents. Big deal, nickels, and dimes right? Maybe not.
That one loss has changed the profit calculation for your business because you lost both the cost of the item and the profit gain from its sale. Mathematically you must sell not ten, not twenty, but one hundred of those items to return you per cost price to fifty cents.
When you design your yearly budget, you make assumptions on your cash and profits that don’t include these losses. The loss of one-item changes those figures. This means you could do everything exactly as planned and find that you have far fewer dollars left than anticipated.
Obviously one item’s impact may not be noticeable, but what happens when we start adding zeros to items lost…ten, one hundred, and one thousand? Moreover, this is just one type of profit problem; that of lost or stolen inventory. That problem is compounded when we lose cash, have accidents or employees make small but continuous errors.