Get a Handle on Your Overhead
Join us in a city near you at Entrepreneur’s Accelerate Your Business event series kicking off Feb 23. View cities and dates »
For many businesses, recessions strike with a double whammy. Sales fall as fraud rises, squeezing profits at both ends. But unlike those in previous recessions, many of today's entrepreneurs are recovering lost revenue with new technologies that track output down to the last mile, french fry and drop.
And for the companies that provide those technologies, business is booming.
In the bar industry, inventory loss is measured through shrinkage: the difference between a bottle or a keg's maximum possible output and the output actually recorded in sales. Shrinkage has many causes--anything from heavy pours to outright theft--but the effect is always the same: less money in the till.
Shrinkage reduces bar supplies by an average of 25 to 30 percent, says Vanessa De Caria, vice president of operations for BEVINCO. BEVINCO conducts weekly audits of drink inventories at bars and restaurants for approximately $200 per week. Auditors weigh every keg and bottle while feeding the information to a laptop running the company's proprietary software. The software then plugs into the bar's sales system, revealing the difference between drink sales and inventory levels. The program even goes so far as to consider varying densities of different liquors into its calculations.
For bar owners, the results can be a rude awakening.
"They are absolutely shocked. Most owners when we walk in say 'I've got everything under control,' and they're mortified to discover they're losing 30 percent," De Caria says.
Aside from the percentage of the loss, clients receive detailed reports that break down what caused the loss, when demand for specific drinks is rising or falling, and how much inventory is still on hand, among other things. The company guarantees a return of $1,000 per week on its services.
The accuracy of the audit reports is due as much to the skill of the company's human auditors as to its software, De Caria says. Auditors take the burden of weighing bottles and analyzing sales data from owners, who are usually busy with other responsibilities.
"They've got a fire in the kitchen. It comes down to priorities," she says.
In the last six months, BEVINCO's sales have increased by 20 percent, De Caria estimates. Businesses that once declined the company's help have quickly become receptive. The lion's share of the company's customers are independents.
"In these times, particularly in this economy, people are relying more and more on technology to solve some of these issues," she says.
Tracking every drop might seem antithetical to bar culture, where good customers expect better pours or even the occasional free drink, but De Caria says the technology's emphasis is on accounting, not on stinginess. Comps are fine, so long as business owners know where their inventory is going.
Knowing where things are going is also the emphasis at LiveViewGPS. For a starting cost of $30 per month (after the separate purchase of a GPS unit), the company offers satellite-based tracking of vehicles through its web site. Clients access the service using a web browser; no special software is required.
The company's clients range from mom-and-pop operations with a single vehicle to companies with fleets of vehicles, CEO George Karonis says.
Watching the service in action is reminiscent of scenes from a spy movie. Tracked vehicles move across detailed satellite maps of each location. A moving vehicle's position is updated every 10 seconds, creating the illusion of real-time progress across the screen.
Aside from the instant, God's-eye view of the web browser, clients can generate reports that contain days, weeks or months of each vehicle's travel history. The service records each address visited by a vehicle and the length of its stay. The company's more advanced units allow dispatchers to send route changes and instant messages to drivers. Employers can also establish virtual fences around areas and receive text messages if company vehicles travel into or outside those areas.
Vehicle tracking is a growing market, Karonis says, and the company's sales have grown by "astronomical proportions" in the last year.
According to Karonis, businesses owners enjoy the legal right to track any vehicle they own. Though labor unions and other organizations have objected to the loss of employee privacy, the return on investment for a business owner can be huge--especially when vehicles are being misused.
One client routinely sent its employees on 150-mile road trips to perform service calls, providing them with cash per diems to pay for overnight stays. After installing GPS devices in the company's vehicles, the client discovered that employees were instead pocketing the cash and driving to and from the work site every day, doubling the mileage and gas costs for the company's vehicles. The cost to the company was more than $1,000 per month, Karonis says.
More common are employees who make inappropriate stops or simply drag their feet between locations, he says. Even when employees are using vehicles appropriately, the records help ensure good customer service and resolve customer disputes.
"When doubt or questions arrive, you will have proof. You will get answers to your questions," he says.
Unfortunately, employers sometimes have good reasons for doubt--and perhaps especially so during a recession. In a recent survey by the Association of Certified Fraud Examiners, more than half of the examiners polled reported seeing an increase in fraud in the last year. At 48 percent, employee embezzlement was the most common type of fraud reported. And 88 percent of the examiners expect fraud to continue to increase throughout the next year.
A previous survey released by the company found that small businesses are particularly vulnerable to fraud due to a lack of internal reviews. Small businesses are also more likely to discover fraud by accident, the survey found.
Of course, plenty of losses occur from simple oversights, especially in high volume, low margin businesses like restaurants. Mitesh Gala, CEO of Altametrics, entered the restaurant industry as the operator of several Jack in the Box franchises, where he saved $50,000 a year when his homemade inventory program caught an over-portioning problem with the company's french fry containers.
Now, his company's eRestaurant software helps restaurants track everything from inventory to shift schedules. As with LiveViewGPS, the software is web-based, meaning that users need only an internet connection and a web browser to access it.
At an average cost of about $125 per month, eRestaurant tracks the amount of food lost to waste, portioning errors and theft. The software can suggest the appropriate number of employees to schedule for each shift based on previous sales, as well as compare sales to supply orders. The latter feature helped one restaurant catch a supplier error that had the restaurant paying for boxes of 20 hamburger patties but receiving boxes that contained only 18.
All in all, most clients reduce their food costs by 1 to 3 percent of their sales, Gala says. Depending on the size of the restaurant, that can translate to a savings of $3,000 to $30,000 per year.
"Using eRestaurant you can see if a single slice of cheese missing at the end of the day," he says.
At Altametrics, too, the number of new customers is growing, with Gala estimating that sales have doubled in the last year. Technology has offered businesses greater efficiency for some time, he says, but that offer was often ignored. Now, many companies can't afford to resist change.
"There's a new level of urgency to these things," he says.
For reprints and licensing questions, click here.