Jonker believes that profit erosion is an important reason why small and medium businesses often do not survive and grow. "I noticed that big corporate companies look at their risks, but that small and medium businesses often don't do it at all," he says. In part, Jonker blames the business-planning guides that many entrepreneurs rely upon. "These guides tend not to discuss how to protect profits from business risks. But it's as old as the hills, and a crucial part of a business plan.”
Profit protection planning involves three steps: the first is identifying the business's risks and vulnerabilities, such as improper business planning, fraud, errors, bad business decisions or irresponsible employee behaviour. The second step is identifying controls to counteract them, such as policies, procedures, standards and an appropriate division of duties among employees. Finally, the business must calculate whether implementing certain controls is a good investment, based on the cost of the controls and the seriousness of the risks.
Jonker recalls helping a marketing company to identify one of its vulnerabilities:
"It’s an unusual way of thinking, but profit protection planning turns the risk into a new business opportunity:
Jonker is not the only expert who stresses the importance of profit protection. "Charlie [Munger] and I detest taking even small risks unless we feel we're being adequately compensated for doing so," wrote Warren Buffett in a 2004 letter to the shareholders of Berkshire Hathaway. "About as far as we will go down that path is to occasionally eat cottage cheese a day after the expiration date on the carton."
Small business owners who are interested in learning more about protecting and maximizing their profits may visit www.business-
Title: Survival Kit for Small and Medium Businesses
Subtitle: Profit from your Business Risks
Author: Michiel Jonker
Distributing website: http://www.business-
Price: $27.95 USD
Free review access to e-book available for journalists
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