Keeping Your Business' Shrinkage Down
If you want to make sure your business is keeping strong financially, there are a lot of areas that you might need to focus on. One such area is that of shrinkage, which is an important concept especially in retail businesses, but also in many other kinds of business too. If you are able to gain a good understanding of shrinkage, and then to work to reduce it as much as possible, that is always going to prove helpful.
In this post, we’ll discuss what shrinkage is, how to identify it, and what to do to ensure you are bringing it down. All of the following will make for a much more financially robust company on the whole, so it’s absolutely worth your while in that sense.
What Is Shrinkage?
First, then, let us define shrinkage in clear terms. Essentially, it is the loss of inventory or money through unknown means. If the means are known, that is what is referred to as waste. If it’s unknown, it’s shrinkage. Practically, what this means in reality is that shrinkage relates to the loss of inventory through theft, error, damage or fraud - so those are the four main things that you will need to tackle.
It happens to every business, and it’s something that you need to keep an eye out for from the first. If you are able to do that, and you put the right protection into place, you will be able to keep your finances in place much more effectively, which is the kind of thing that will help a great deal with your business on the whole.
Spot Shrinkage In Your Business
One of the first things you will need to do in the fight against shrinkage, then, is to learn how to spot it in your business. Once you can see it, and you know it, you’ll find that you have a much better ability to be able to see it again in future, and you will develop something of an eye for it in this way which can be really helpful. Identifying where shrinkage is occurring is something of an art and a science, so it will certainly take practice in any case.
One thing that can help is to ensure you are tracking things carefully, including your inventory, and to compare what your records say you should have versus what you actually do have. This is the fundamental thing that you need to do. Conduct regular cycle counts and full inventory audits and make sure that you are doing so with absolute clarity.
Sometimes the source will be obvious - such as a few missing high-value items - and sometimes it’s a pattern that will build over time. In any case, the more precise your tracking is, the faster you’ll spot the leaks, and the more empowered you will be to do something about it.
Tighten Internal Controls
Whenever and however it happens, though, you’ll need to make sure you are doing something about it. And that mostly means taking the opportunity to tighten the internal controls in your business. A surprising amount of shrinkage comes from within, so if you are going to improve this side of things, you’ll find that most of it is probably dealt with a lot more effectively on the whole. This can be in the form of employee thefts or mistakes, and it’s something that is unfortunately rampant in all kinds of businesses around the world.
If you are able to have strong internal controls, you will be able to manage a lot of that. That might include having clear procedures for receiving, stocking and selling items, and ensuring that you are keeping responsibilities separate. For instance, the person who orders stock shouldn’t be the one checking it in, ideally. The balance you want to aim for here is to add in oversight without creating a culture of distrust. If you can get that right, you are going to find it makes for the kind of accountable culture you want, rather than one of pure suspicion which serves nobody.
Use Technology Wisely
There are all sorts of technological procedures and tools you can make use of when it comes to trying to keep your business’ shrinkage down too, and this is definitely worth thinking about. For instance, you might want to ensure you are using good inventory management software, as that is definitely going to help. And you should find that having the right point-of-sale systems in place, as well as tracking tools, will mean that you are going to spot trends a lot easier and quicker too.
There are lots of other technological things you can use too, such as bhph gps tracking for vehicles and machinery, and installing security cameras in strategic locations. All of this is going to help deter theft, and help you review incidents more objectively, so it’s absolutely going to be worth your while. Some systems can even alert you automatically when certain products move faster than expected - a common red flag for shrinkage and so something to keep your eye on.
Build A Culture Of Awareness
As is often the case, your team is actually your first line of defense here. You’ll find it helpful to train employees to understand all they can about shrinkage: what it is and where it comes from, as well as how to recognize anything suspicious in colleagues and customers and so on. You should also make sure that the procedures in place are consistent and that your people know how to follow them too. More importantly, help them understand why shrinkage matters - with a strong sense of that, they are much more likely to do their part.
Those are all ways in which you can help ensure that you are keeping the shrinkage in your business down. That in turn will make for a much stronger business on the whole.
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