Payroll: A Common Profitability Leak In Your Business
You might think that paying your employees is just another basic part of running a business. But you’d be surprised how many people are losing money because of how they pay their employees.
We want you to better understand how this profit leak may be affecting your business and show you ways to plug the leaks for good.
This profit leak can look like:
Not paying attention to how much time it takes to schedule employees.
Ineffective time schedules.
Offering unlimited overtime to your employees.
Errors in manual time sheets
Employees who pad their time.
Overstaffing your business in areas that don’t generate profit.
Inefficient systems.
Profit Leak 1: Ineffective Scheduling & Overstaffing
Most businesses start out small and add employees over time, and one of the things that can fall through the cracks is having a strategy when scheduling your employees. So what does that look like and how does it cost you money?
Here’s a good example, we worked with a restaurant client who was spending 50% of their gross revenue on payroll. We compared numbers in the industry and found they were spending far more than the industry average. We met with the owners, managers, and staff. Together, we developed a simple scheduling system to monitor hours against daily sales. This alone cut the payroll costs by 10%. Essentially, we made sure they only brought in extra staff when they really needed them.
We’re proud to say that by working with us our clients saved around $300,000. We were able to plug this profit leak by looking to industry standards and recognizing that more employees doesn’t necessarily equal more profits. We’d highly recommend taking a closer look at your industry, how you schedule, which employees generate the most income, and whether or not your current scheduling system is profitable.
Profit Leak 2: Inefficient Systems & Padded Time
Ok, we’re just going to say it. If you are using manual time cards, you may be losing money. As an employer the best thing you can do is to have systems in place that ensure that your employees use your resources wisely.
Here’s an example of a two-for-one profit leak that we experienced when our transportation client came to us with some discrepancies in their books. Initially, we weren’t focused on payroll at all. We simply wanted to create geolocated routes to save our clients travel time so we outfitted their fleet with GPS.
We learned soon afterward that the drivers were using very different routes, some were using the trucks on their personal time, and others were obviously padding their manually entered time sheets which we compared to the data from our GPS. If we hadn’t an efficient system in place to track routes, we might have never noticed these discrepancies.
It’s imperative to create efficient tracking systems for both your products and your employees. Our ability to create a digital system that replaced manual time cards, tracked the driver’s actual route, and minimized employee's inaccurate calculations ultimately saved our clients about $50,000.
Profit Leak 3: The Numbers Just Don’t Add Up
One of the most common payroll problems that we see is that the math simply doesn’t work. This can be anything from miscalculating how much time and people power an employer needs for payroll to miscalculating the time it will take to schedule employees and to process their payment. We recommend building in a buffer of at least 20% for each employee’s basic admin costs.
In other instances, the same person always manages payroll (sometimes for years) and the employer never runs a time audit to see how long processing payroll costs on average. In our experience, it’s ideal to cross-train at least one other employee on payroll and occasionally compare the amount of time it takes to process payroll each month. If your business isn’t really set up that way, then have someone else run payroll (or do it yourself) when your employee goes on vacation. There will always be some instances where payroll can get complicated and take more time but on average you should see pretty similar time stamps from month to month. If you’re seeing significant differences in the amount of time it takes different people to do this very ordinary process, it’s time to dig deeper to see if your employee needs more training or if their hours are being padded.
It’s our hope that being able to identify these profit leaks will help you plug them. If you have other payroll problems and no answers, we’d love to help. Schedule your free call today.