3 Ways to Reduce the Risk of "Covering Losses" in Online Business
Created on 3 July, 2024 • Scale Up Business • 74 views • 2 minutes read
In business, especially online business, it's common to find ourselves "covering losses." This term refers to using personal funds or cutting profits to cover financial shortfalls in the business. Almost every business has faced this situation
3 Ways to Reduce the Risk of "Covering Losses" in Online Business
In business, especially online business, it's common to find ourselves "covering losses." This term refers to using personal funds or cutting profits to cover financial shortfalls in the business. Almost every business has faced this situation at some point.
While it can be normal, if left unchecked, it can lead to greater losses. Sales might stay high, but profits can decline, even without increased costs or expenses. Frequent instances of covering losses indicate there might be a leak in your business finances.
3 Ways to Reduce the Risk of Covering Losses in Online Business
[1] Identify the Cause of the Losses
The first step to reducing the risk of covering losses in an online business is to figure out why it's happening. Common reasons include miscalculations in cash handling and discrepancies in shipping costs. For example, you might estimate a package to weigh 1kg, but the courier charges for 2kg.
Another example is with dropshipping. You might order a product in black, but your customer receives it in green, and they refuse to accept it. In dropshipping, you're responsible for these kinds of issues.
[2] Monitor More Strictly
The next way to reduce the risk is to monitor your operations more closely.
If the problem is weight discrepancies between you and the courier, you can tighten controls. You could add a buffer to your product weight, with the understanding that any excess shipping cost will be refunded to the customer.
Alternatively, you could keep the original weight but ensure there's no difference between your measurement and the courier's, and be prepared to cover any shortfall.
[3] Communicate with Relevant Parties
When covering losses, the final step to reduce the risk is to communicate with all relevant parties.
Discuss who will bear the cost if something goes wrong. Will one party cover it, or will it be shared? This approach can help mitigate the risk of covering losses.
Risk is inevitable but manageable. The three methods above can help reduce it.
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Conclusion
Covering losses in online business can be mitigated by identifying the root causes, monitoring operations closely, and communicating effectively with all parties involved. These steps help manage and reduce financial risks, ensuring better business stability and profitability.