How to spot and fix leaky profits

Poor management can quickly drain revenue out of a business. Here are three ways to stop staff wasting time, energy and resources in your business.

Running a business is hard work; making a profit is even harder. I am a pub entrepreneur and in the hospitality sector we work on razor thin margins. As a result, I’ve become skilled at maximising every resource under my control to increase our profits. For any SME, the key to maximising profit is minimising waste. We’ve implemented a range of systems to help us keep track of every resource so we can see when and where wastage is occurring. Nothing gets under my skin more than the inefficient use of resources. I call it leakage, because it’s like a leaky tap, and the water is your profit, going down the drain, one drop at a time.

You can’t manage what you can’t measure, so here are three ways to help you and your staff identify waste, harness it and turn it into energy so you can maximise the profits in your business:

1. Identify the forms of leakage

Waste comes in many forms. You can waste time, labour, electricity, food or water. I need to control these variables or I lose profit.

In my business, the costliest form of leakage is people. That sounds a bit weird, but the inefficient use of staff and their time eats into every aspect of our margin.

To minimise leakage and maximise efficiency, staff need to be managed well. Team members need to know where they stand and good reporting systems like performance reviews, informal catchups, dashboards and surveys help you achieve that. If people are not performing at their best, and are not given the systems to help them perform, that creates leakage.

“If people are not performing at their best, and are not given the systems to help them perform, that creates leakage.”

For example, if you have an issue with a staff member, it’s best to find that out quickly, have a chat, sort it out, and then make sure that behaviour doesn’t show up again. Just having that conversation in itself is instructive, as there may be something going on with that person you don’t know about, that is outside that person’s control and maybe isn’t their fault. They then get the chance to explain what they’re doing and why and then you can make a calculated decision about what to do next. Letting bad behaviour drag on, or finding out about it six months after it happens, means you’re acting too late. The leakage has already occurred.

Systems like real-time data and dashboards can pick up small problems before they become big problems.

2. Know what matters

Wastage shows up in the smallest of ways. Look carefully at any business and you’ll see many forms of leakage, much of it invisible.

For example, a key indicator that a pub is wasting resources is when the big screen TV in the sports bar is turned off. Clearly, someone doesn’t have it in their job description to turn the TV on each day. Whilst this seems trivial, it affects the bottom line. How? For a start, the pub had to pay for the TV, so there’s a $9000 leakage right there. The TV is plugged into the wall, so it has to pay for electricity whether the TV is being used or not. That’s leakage. The pub owner is paying a fee to show the football games on that TV so that’s a leakage, as no one gets to watch the game. The patron is paying to have an experience and without the game showing, they lose out on what they came in for, which impacts on the atmosphere in the pub, which impacts on who comes into the pub, which impacts on what they spend in the pub – and on it goes. Leakage everywhere, multiplied day after day, month after month, simply because someone somewhere didn’t know it was their job to turn on the TV.

3. Pay attention to the little things

To minimise waste and leakage, you need to know what matters in your business and what to pay attention to. When you know what those variables are, you can direct your energy to sorting out the things that make a real and material difference to the bottom line. To do that, you need to know your numbers.

For example, 35 per cent of what we sell over the bar is draught beer, so we spend a lot of time making sure that the beer service is efficient and everything is in excellent working order.

We need to make sure the kegs are easy to access, our glasses are clean and stacked close to the tap; that the dishwasher is easy to load and fast drying so that we never run out of clean glasses; that the till has cash and the tea towels are frequently laundered.

This may all sound bleeding obvious but on a night when we’re serving 3000 customers and pouring 30,000 beers, if those details are not taken care of, a lot can go wrong very quickly and then we don’t serve as much beer as we should. If this happens, we lose our rebate. If that happens, we lose our margins, we become unprofitable, we lose our investors and the dominoes start to fall.

How to take action to minimise waste

Minimising waste is not brain surgery but it takes time and attention to detail to get it all aligned. Start with working out what resources you have – time, labour, electricity, food or water – identify the ways  leakage occurs and then set up systems to monitor and measure what success looks like, so that you know what to pay attention to.

People often ask how we’re able to take a pub, buy it at a good price and then resell or revalue it a short time later at such a high price or valuation – it’s because of these little things I am mentioning here. We take care of the small stuff, which means the big stuff (generally) takes care of itself.

This article first appeared in issue 36 of the Inside Small Business quarterly magazine