Uncovering Money Leaks for Manufacturers
Led by Adam Baker of Schooley Mitchell
What are money leaks, and how are they affecting the profitability of your operation?
Money leaks are small ways that business expenditures are wasted. These leaks cause unnecessary profit loss and require an organization to generate more revenue to compensate. In a recent USA Manufacturing Hour chat on Twitter, host Adam Baker from Schooley Mitchell in Pennsylvania led a discussion about ways to eliminate money leaks and increase profitability.
Worst Business Purchase
The discussion began with people introducing themselves and sharing their worst business purchase or expense stories.
- Dave Meyer from BizzyWeb in Minnesota said, “My story is this: I have a friend who did a Groupon promotion for her spa and salon business. The deal was half off a massage—$75 for a $150 session. Groupon takes half of the cash, so she was down to $37.50 per sale, which cost $75 in labor. She sold 200 and lost $7,500.”
- Nigel T. Packer from PelaTis Online in Wales, United Kingdom, said, “I once reviewed oxyacetylene rentals for the company where I was working. They were paying monthly rental fees on 73 sets. When I went around the facility, I could only find 18 sets. We cut a considerable amount of money from that bill.”
- Packer added, “When I went through the records, they had been paying for more than 10 years. The missing sets had been returned to BOC, but BOC had not removed them from our account.”
- Host Adam Baker said, “My worst purchase story: In a previous organization, we had a closet full of brand-new TVs that we never used. This was ‘use it or lose it’ budgeting that incentivized wasteful spending.”
What the Heck Is a Money Leak?
The discussion then turned to what a money leak is. Participants shared their thoughts.
- Julie Basello from Radwell International in New Jersey said, “I would think a money leak is an area in an operation where money may be wasted unnecessarily.”
- Baker replied, “For sure—it’s just dripping out with no end in sight!”
- Dan Bigger from Optessa Inc. in New Jersey said, “Spending money on things you don’t use or could get at a reduced rate.”
- Baker replied, “I won’t let my wife see this answer. She’ll say our garage is full of money leaks!”
- Gina M. Tabasso from MAGNET in Ohio said, “Costs that add up and suck you dry.”
- Baker replied, “For sure. It’s like death from a thousand cuts!”
- Kristina Harrington from GenAlpha Technologies in Wisconsin said, “Cash that is going out the window that no one is measuring or managing.”
- Baker replied, “Exactly!”
- Kati McDermith from IndustryNet in Illinois said, “A money leak would be anywhere you are losing money and might not know about it!”
- John Buglino from Optessa Inc. in New Jersey said, “Unlike the money spent supporting my LEGO collection, money leaks are costs incurred without knowing.”
- Baker replied, “LEGO blocks are an investment!”
- Neil Hussey from Denco Lubrication in the United Kingdom said, “What I have when the wife gets hold of the credit card after payday?”
- Velavu in Canada said, “Costs that add up over time. Looping it back to what we do, when businesses don’t track their assets efficiently, that’s a money leak.”
- Tod Cordill from Moderno Strategies in Oregon said, “A boat?”
- VirtuDesk said, “Sample illustration: buying a block of ice. When you buy a block of ice, you don’t get to consume it all because some of it has already melted along the way.”
- Ruby Rusine from Social Success Marketing in California said, “Money leaks can erode an organization’s profitability, which can eventually lead to layoffs and other cost-cutting measures that can affect employees.”
- Packer said, “Slow, overlooked spending that drains essential revenue and capital. I downsized eight years ago and started working from home. I reduced my overhead by 80%, and I am much less stressed.”
Baker’s perspective: “Money leaks are ways that businesses unnecessarily lose profit. This includes unknowingly paying for services they don’t want or need, paying for unidentified errors on their bills, not having their services optimized, or paying rates higher than they should.”
He added, “Businesses know how to identify and respond to ‘burst pipes’—costs they know they must address, such as labor and materials. Money leaks persist because businesses lack the time to address them or the knowledge to recognize them.”
Why Care About Money Leaks?
The discussion then turned to why every employee, especially those in sales, should care about money leaks.
- Chris Giglio from MFG Talk Radio in New Jersey said, “Is it because of how much this money affects the bottom line of a company, which also impacts employee salaries and projected earnings?”
- Tabasso said, “They add up and eat into profitability. We are supposed to be good stewards of our business.”
- Buglino said, “A money leak can get out of hand quickly. Stop the leak to save the business.”
- Bigger said, “The more money the company can save from waste, the more it can use on things that move the company forward and create jobs and growth.”
- Meyer said, “The more profit you retain, the less pressure there is on sales to sell more—and you still make more cash!”
- Kaia from Strat Mg in Illinois said, “We’re all in the same boat together. When there’s a leak, it affects everyone.”
- McDermith said, “Because a penny saved is a penny earned.”
- Whitney Koch from Welker, Inc. in Texas said, “The more leaks there are, the less money your company has for budgets and payroll.”
- Velavu said, “Saving money means more opportunities to invest in the growth of the business, operations, and more.”
- VirtuDesk said, “Because everyone is part of the company and should care. Imagine using an entire ream of tissue paper in the restroom when only two plies are needed. That could have saved money on tissues.”
- Hussey said, “Because it ultimately impacts the bottom line, and that affects everyone.”
- Pavel Stepanov from VirtuDesk said, “When your people care, you can save money. The added savings can be used to grow your business, increase employees’ salaries, produce more job opportunities, and support the economy.”
- Emily Kite from Obsidian Manufacturing Industries, Inc. in Illinois said, “I’m out of my element here—just here for the knowledge!”
- Jim from Zero Surge in New Jersey said, “Early in my career, it was pointed out that my time can be a money leak. Don’t waste five minutes saving a paper clip that costs one cent to replace. Environmental costs aside, that is the example that came to mind.”
- Jim added, “On the flip side, automation can be a money leak if it is not properly integrated into a process. If a $5 hand tool is just as fast, there is no need to buy a $50,000 machine.”
- Matt Long from Aviate Creative in New Jersey said, “Company instability leads to job insecurity. If there are actions employees can take to minimize this insecurity, it is in their interest to do so.”
- Missy Moorefield from Southern Fasteners & Supply, Inc. in North Carolina said, “Money saved from leaks can be used for raises, bonuses, and other morale boosts within the company. I would also think that money leaks could eventually cause a company to go bankrupt.”
Baker’s perspective: “Every dollar wasted in an organization requires more generated revenue. A portion of annual sales is being used just to cover money leaks.”
He added, “Plugging these holes makes revenue generation less stressful and more impactful to the bottom line.”
He continued, “Money leaks are like running the air conditioner with the front door open. Is the air conditioner making a difference? Sure, but it’s working much harder than it would if you shut the door. How much harder are you working because of money leaks?”
Paperless Billing and Automatic Payments
The discussion continued with participants sharing why they think essential-service vendors—including utilities, telecommunications, shipping, and fuel providers—promote paperless billing and automatic payments.
- Moorefield said, “Less waste, less overhead, and convenience.”
- Jim said, “You are making me the contrarian today. Automatic payment is where fraud lives. You still need to oversee payments and look for fraud and errors. Also, when there is a problem—we have an issue with an automatic invoice portal—they take forever to fix it.”
- Koch said, “I would guess people don’t review electronic statements as closely, if they review them at all, and it saves vendors postage and handling.”
- Stepanov said, “Because it’s economical and cost-effective. Imagine how many trees are cut just to create a ream of paper. By going paperless, you can save those trees and save money for your company.”
- Buglino said, “To hide their price increases: ‘Save $5 when you go paperless.’ Then you check the bill and find a new, useless $5 fee added for who knows what.”
- Bigger said, “So they don’t have to mail bills, which saves on the cost of acquiring the money.”
- Meyer said, “Easy—it’s cheaper for them and better for the environment, too! There are lower handling costs, no printing costs, no postage, and it’s how people want to pay bills now.”
- Kaia said, “Good points! It’s true that many people and companies prefer the traceability and convenience of online bill payment. The environmental benefits also provide a win for companies, customers, and all of us. There are cost savings from reducing labor through automation, materials such as printing, paper, and envelopes, and postage.”
- Hussey said, “There are many reasons, but my choice is environmental reasons, and it saves the time required to physically mail them.”
- McDermith said, “Out of sight, out of mind! If you can’t see the itemized bill, you don’t know what you’re being charged for.”
- Rusine said, “Mailing, distribution, and handling services can add up. Automatic payment is likely less expensive.”
- VirtuDesk said, “Paper is just a mess in the office. It’s more efficient and cost-effective to keep your payment records digitized.”
- Packer said, “There are many times when we need to produce a utility bill for identification. We have a no-print policy in our office. I have a printer cartridge that I bought in 2015.”
- Kite said, “With paper copies, I am sure people don’t look at them as closely as they would if they were electronic, especially with everything going electronic.”
- Amy Anderson said, “As a customer who has been involved in these printing and billing systems, I know the company can print more cheaply than I can, and I still hold on to the desire for a piece of paper.”
- Cordill said, “There are many reasons for paperless billing: reducing printing and mailing costs, reducing data handling, meeting consumer preferences, supporting sustainability initiatives, and addressing paper supply-chain issues.”
Baker’s perspective: “Vendors are conditioning you to pay without verifying services or costs. They create additional steps for you to hold them accountable but fewer steps for them to get paid.”
He added, “Because we are busy, we tend to rarely review what we automate. Your vendors know that.”
He continued, “Breaking news: Employees have more tasks and less time! If vendors can make it easy for companies to pay them but difficult to monitor them, they know their bills will be questioned less frequently because employees don’t have time. Out of sight, out of mind.”
Monitoring Invoices
Participants were then asked why companies should invest time in monitoring invoices from essential-service vendors.
- Koch said, “So they ensure they’re only paying for the goods and services they actually received.”
- Bigger said, “Question everything and try to get reductions. There should be a department that does this. This is how the auto industry works.”
- Nicole Donnelly from Donnelly Marketing Group in Virginia said, “Because it’s not uncommon to find errors! It happens to me all the time with medical bills.”
- VirtuDesk said, “That’s where you’ll find money leaks!”
- Buglino said, “It’s the easiest way to lose money as rates fluctuate from month to month.”
- Hussey said, “To make sure they’re only paying for the services they use and that the bills are correct. It also allows them to check whether the services can be obtained more cheaply elsewhere.”
- McDermith said, “To find the holes and stop the money leaks!”
- Kite said, “To make sure they know what is being charged. If no one is monitoring, companies could add service fees and other charges without you knowing.”
- Long said, “To stop the leaks!”
- Jim said, “I look at cost as a percentage of revenue. It helps determine whether costs are rising or important. Some services are difficult to change. I was forced into a bank change that wasted two full weeks because I had to redo all the automatic payments.”
- Velavu said, “It’s critical to the success and survival of a company! Staying on top of invoices ensures everyone receives what they are owed and can be a helpful tool for balancing a company budget.”
- Kirsten Austin from DCSC Inc. in Missouri said, “Sometimes companies may honestly overcharge by accident. It’s not always sinister, but it’s critical to keep as much money as possible in your operating accounts for important things, such as payroll, overhead, marketing, innovation, and improvements.”
- Packer said, “With online banking, I can see every payment and deposit each day. I can see when an invoice has not been paid and act on it. Technology can be very useful.”
- Packer added, “Negotiating is an important part of the purchasing process. Remember that if you move from one company to another while chasing the lowest deal, you may eventually run out of suppliers without ever building a relationship.”
Baker’s perspective: “Invoices uncover money leaks. In a recent survey, more than 80% of telecommunications bills had undiscovered billing errors. Vendors rarely advise you of errors.”
He added, “Without reviewing bills, you never question the rates, terms, or services you are paying for.”
He continued, “Is your company awesome? Has it ever made a mistake? I’m sure the answer is yes to both. No matter how awesome your vendor is, sometimes it makes mistakes, too—but it’s up to you to notice and correct them. Mistakes can go unrealized for years!”
Plugging Money Leaks
The discussion concluded with participants sharing effective ways to plug money leaks.
- Bigger said, “Review everything, or hire someone like Adam to do this work.”
- Buglino said, “Pay attention and ask questions—lots of questions.”
- Stepanov said, “The best way is to watch your spending and go paperless.”
- Chase Bodor from Plastics Plus Technology, Inc. in California said, “Audit your spending and find those ‘dead money’ zones. Make the dollars you spend work for you, not against you!”
- McDermith said, “Write a strongly worded email. This is also one of my hidden talents.”
- Velavu said, “Find ways to track and monitor everything at once. More visibility means more control.”
- Meyer said, “My favorite: Just ask. Negotiating and revisiting contracts is a fact of life.”
- Long said, “Regularly review any areas of the business that pose threats of money leakage, such as advertising, subscriptions, staff—including theft and morale—and vendors.”
- Kite said, “Designate someone specifically for this task?”
- VirtuDesk said, “Examine your bills and watch where you spend your money.”
- Hussey said, “Track, check, question, question, question, double-check, and negotiate.”
- Koch said, “Have departments closely review invoices to ensure they align with the goods and services purchased. Regularly review services such as utilities and see if you can negotiate or find a lower rate.”
Baker’s perspective: “The answer is simple but not easy—you have to make the time to do it. You could be amazed by the results!”
He continued, “Ways to plug money leaks include:”
- Negotiating with vendors: Review both rates and terms.
- Auditing your services: Do you know what you are paying for?
- Monitoring your invoices: What you don’t know does hurt you.
- Outsourcing the effort: Most companies don’t have the time or knowledge to successfully plug the leaks.
Baker added, “Now go check those invoices and plug those leaks!”
