The old saying 'You have to spend money to make money' can be a dangerous one. Every business has it's costs, but not every business owner takes the time to distinguish between what is an essential expense, and what is a 'nice to have' expense.

And on top of needless expenses, businesses can also lose potential profits through poor management processes and techniques. So let's have a look at 5 of the main culprits which contribute to lost profits and reduced success:

Overheads

Limit your overheads to 10% of your sales. If your overheads are significantly more than 10%, some options may include:

reducing office size

removing unnecessary travel - try phone or video conferencing

stop trying to impress with an expensive fitout

overstaffed - look at employee numbers and positions

consider what you spend on office supplies - these are often 'nice to haves'.

High inventory levels - insufficient purchasing controls

Advertising costs - what are you spending and what return are you getting?

Employee and Management Issues

Happy employees work more effectively and productively. If your employees are unhappy then their performance is impacting on the potential profits of the business. What to look out for:

staff performance - keeping unproductive employees

nepotism - hiring family and paying them too much

unskilled employees - training not provided, no opportunities

poor morale - salaries, working conditions, benefits

Processes and Systems

Failure to update processes with technology can leave you out in the cold with your customers and suppliers. Older technology becomes obsolete and is no longer supported by the supplier. Do you have:

old or no technology - processes take longer and are prone to errors

up to date communications - email, web enquiries, voice mail, email you can check wile away from your office

the right management information - are you collecting and useful data

Cash Flow

Cash is king. More businesses fail due to cash flow problems than anything else. These systems must be failsafe and monitored on an ongoing basis:

acounts receivable - collections must be on time

payment terms - don't create a situation where you provide the service now and customers pay later

credit losses - from poor credit approval processes

pricing - not charging enough for what you do/sell

Not enough Planning

Lack of an articulated plan can lead to poor (and costly) decisions:

long and short term goals not articulated - business lacks direction

employees not engaged - not involved, don't contribute, no ideas

decisions are ad-hoc, and not taken with the bigegr picture in mind

How does your business fare against some of these profit drainers? Are you spending money needlessly, or on items that aren't adding value to your business? There is always room for improvement when it comes to profit: spend carefully, save easily, invest wisely.

Megan Tough - published writer, coach, facilitator and speaker - works with people to create outstandingly satisfying and truly successful professional lives. Make more money - have more fun! To learn more and to sign up for more FREE tips and articles like these, visit http://www.megantough.com