Manage my business

Loss prevention tips for small business

Retail businesses of all sizes need to have a plan regarding retail loss prevention. Inventory shrinkage, or loss of inventory due to shoplifting, employee theft or vendor fraud, cause over $34 billion in losses every year, according to a 2019 National Retail Federation survey.

Here are some loss-prevention tips for small business owners.

What is loss prevention?

Loss prevention is when a business owner takes active steps to stop product loss and potentially boost profit.

Keeping track of inventory is very important, as it can help track loss when it happens, not afterwards. Inventory management should be a central part of your business plan. But this is focused on tracking loss, not preventing it.

Retail loss prevention occurs at the store level. You need to understand how losses occur and how to prevent that loss from happening. The three most common types of retail inventory loss are shoplifting, employee theft, and vendor error/fraud.

How do you prevent shoplifting?

One of the most common causes of inventory shrinkage is shoplifting; stealing an item from a store without anyone knowing about it. Usually, these items are taken for personal use, rather than resale. Sometimes, articles of exceptional value will be fenced or pawned.

Shoplifting is usually a crime of opportunity. That means it happens when a person sees an opportunity to commit a crime and decides to take it. Increase the chances of catching someone in the act, and you reduce the chances of the crime occurring.

You should always post signs stating that you will prosecute shoplifters. Make sure these signs are prominently displayed and list the consequences. If you have security cameras or security guards, post signs stating that as well.

Preventive measures against shoplifting

There are several ways to reduce the chances of shoplifting.

  • Engage the customer: When you greet a customer upon entry and engage with them as they browse, you let the customer know that someone is aware of their presence and potentially keeping an eye on them. Train your employees to do this.
  • Lock dressing room doors: If your store has dressing rooms or any other areas hidden from view, keep those doors locked. If a customer needs to access them, they must ask an employee to do so. Potential shoplifters are less likely to commit the crime if they are required to interact with an employee to do so.
  • Make the store easy to observe: Installing mirrors and widening the spaces between displays decreases blind spots, which reduces cover that shoplifters can use to hide. Train your employees to spot suspicious behavior.
  • Lock expensive items away: Items which are small but very expensive are highly desirable for shoplifters. Keep them behind glass or the sales counter, or in a plexiglass cabinet that only an employee can open.
  • Install cameras: Installing video cameras is very helpful, in that cameras function as much as a deterrent as to record evidence. If you alert customers they are being recorded, then potential shoplifters may reconsider.
  • Consider hiring security: If none of the above is effective, your business may be in a high-crime area. Hiring a security guard or contracting with a dedicated security company may be the best option.

How to prevent employee theft?

Another common cause of inventory shrinkage is employee theft. Whether it is money or items, theft is still theft. It is vital to let your employees know that you will be checking the inventory yourself from time to time. By doing this, you are aware of their actions and lessen the opportunity for them to steal.

Much like shoplifting, employee theft is a crime of opportunity. When employees are unsupervised, then opportunities arise. Some of the methods for preventing shoplifting can also work to stop employee theft. Cameras and dedicated security guards can keep an eye on your employees as well.

  • Background checks: Running background checks when you hire is a means of screening for previous criminal convictions. If an applicant has multiple theft convictions, you may want to reconsider when deciding whether to hire them.
  • Develop a plan: Have a loss prevention plan in place that includes the steps to take if an employee is suspected of stealing. Check your local employment laws and make sure that the steps in your plan follow those laws.
  • Supervision: Employee supervision does not necessarily mean that the boss is always there. Oversight can mean reinforcing good behavior, keeping employees invested in the success of the business, and making sure they are aware of the consequences of employee theft. A more engaged employee is less likely to need watching.

What about vendor error and fraud?

When vendors stock your shelves themselves, there is a greater opportunity for vendor fraud or error. Your small business will take the loss whether the loss is deliberate or simply a mistake.

A manageable alternative to avoid this is performing item fulfilment yourself. But, some vendors require that their employees are involved in stocking. If this is the case, do delivery audits and check against what the vendor claims to have delivered.

If needed, have an employee accompany the vendor employee and do inventory alongside them. This practice may be a good idea, even if there has been no loss. Chiefly, it gives the impression that your company is watching can keep vendors from trying anything.

Final thoughts on loss prevention

For small businesses, the margin between profit and loss can be minimal. Any inventory shrinkage should be cause for concern, and loss prevention should always be on the minds of

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The Growth Center does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.