Michael Seaman is the co-founder and CEO of Swipesum, a comprehensive payment processing and merchant services consultancy.
With today’s economy, businesses are surmounting a handful of inflation issues, including high labor costs, high interest rates, spending cuts and various other financial burdens. According to the United States Census Bureau, in April 2022, the percentage of small businesses that reported they had experienced large price increases on goods and services they pay for over the course of six months jumped to 40.6%, and an overwhelming 78% of U.S. small businesses reported price increases of any kind. Still, more often than not, the most detrimental financial issues businesses face are the ones they don’t recognize are happening.
There are several ways businesses can lose money without ever realizing it and by the time they do, it’s often too late. From payment processing and accounting issues to licensing and legacy systems or even outdated marketing strategies, businesses are pouring money into initiatives that can cause more financial burdens in the long run.
Here are some of the most common ways I've seen businesses lose money that fly under the radar:
Unnecessary Merchant Service Fees
Any business can fall prey to the fees associated with accepting payments. Trying to decipher the transactions in a business’s merchant statement can be complicated, and businesses typically only do it on a quarterly or annual basis. This commonly leads to unnecessarily high and hidden fees going unnoticed.
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Swipe fees can contribute heavily to money lost by merchant services. Between 2001 and 2022, swipe fees grew exponentially. Other sources of unnecessary fees include processor transaction risk fees (risk fees), non-qualified fees (any card brand), network access fees and maintenance fees, some of which can be negotiated or found cheaper through different providers. By prioritizing monthly audits, businesses can avoid surprises and hidden fees that diminish crucial revenue streams.
Excessive Or Unused Licenses For Software
Unused software licenses can cost companies a significant amount of money. From accounting and payment processing software to creative and marketing tools, work management platforms and more, most businesses use a variety of different platforms to conduct business but lack visibility into how many employees are actively using them. Often, there’s a better agreement with access to more licenses available as an alternative to overpaying for individual ones. Businesses should conduct quarterly controller checks even if a full-time controller isn’t at their disposal.
According to a study from Nextthink (download required), employees tend to use only 50% of the licenses businesses pay for.
Overpayment For Utilities (Electricity, Water And Internet)
Arguably one of the easiest ways for businesses to lose money is by frivolously ignoring high utility costs. Electricity bills tend to be the highest utility cost for most businesses, yet they can implement several strategies to help reverse or lower these costs. One of the fastest ways is to input LED lights in the workplace. They can use significantly less energy, last longer, and provide a brighter, more professional appearance. Optimizing your business’s HVAC system, conducting regular appliance maintenance checks, and educating employees on energy-saving tips are other manageable tactics to help reduce company utility costs. There’s an entire industry dedicated to solving these issues that most business owners don’t take advantage of.
Failing To Renegotiate Service Contracts Annually
Another way businesses tend to lose money is by neglecting to price-check their agreements or negotiate when signing a new contract. This allows service and software providers to get away with annual price hikes. When signing with a provider, business owners should look for monthly or annual service agreements, not three- to five-year terms that don’t allow for negotiations.
Missing Out On Volume Or Early Payment Discounts From Suppliers
Businesses across various industries require third-party vendors and suppliers; however, without proper research or negotiations, they can overlook beneficial savings and discounts. A lack of understanding the saving options available and the requirements for eligibility is what stands in the way of most businesses taking advantage of them.
Vendors will often provide volume discounts as an economic incentive to encourage businesses to purchase goods and products in large quantities. Early pay savings are another option that allows companies to negotiate prices by agreeing to pay the supplier earlier than the invoice maturity date.
High Employee And Customer Turnover Costs
While the people within a company should be a consistent priority for every business owner, some neglect to recognize the negative impact management and hiring processes can have on overall profit.
The cost to hire an employee may be anywhere from $4,700 to four times an employee's salary. By prioritizing employee retention through strategic culture and engagement initiatives, businesses can avoid losing this investment due to turnover.
Customer turnover is also extremely detrimental to profit margins. Retaining existing customers is equally, if not more important than acquiring new customers, and selling to a current customer is often easier than selling to a new customer.
Outdated Marketing Strategies
Delving into marketing initiatives can be lucrative for businesses; however, without the proper research and goals in mind, the costs can outweigh the benefits. Before implementing a marketing campaign, businesses should have a solid idea of their customers’ true preferences and needs.
Researching platforms and determining the best option to reach your intended audience is imperative to your marketing return on investment. Marketing is not a one-size-fits-all approach; therefore, a strategy or initiative that worked in the past may not be the best option for the present.
Technology Investments With No ROI
The rise of digital transformation over the last decade thrust thousands of businesses into technology partnerships and initiatives. However, the rush towards implementing new technology can lead businesses without a clear roadmap and strategy to spend far more than anticipated. Before adopting new technology, outline a plan, decide on clear goals and objectives and initiate a timeline to level expectations. Successful implementations occur when the specific struggles the solution is meant to address align with the business objectives.
It’s often hard to recognize these hidden opportunities to reduce costs, but by educating internal teams and prioritizing financial wellness, business owners can prevent unnecessary revenue losses.
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