Learn Loss Prevention Strategies for Business

Learn about loss prevention strategies to protect your business and reduce the amount of loss your company experiences.

By Brad Nakase, Attorney

Email  |  Call (888) 600-8654

Have a quick question? I answered nearly 1500 FAQs.

What is loss prevention mean in business?

Loss prevention is a strategy a business implements as part of an overall security management plan and is designed to reduce a business’s losses from theft, fraud, and operational errors. Loss prevention is a risk assessment aiming to maximize a business enterprise’s profits by better managing preventable losses. Retail loss prevention is a set of practices employed by retail companies to prevent inventory loss and preserve profits.

Creating a Loss Prevention Strategy for a Business

In the business world, loss prevention is defined as when an owner takes the necessary steps to reduce profit loss. To fight profit loss, a business owner should first understand the most common causes of the phenomenon. These reasons include supplier fraud, internal and external theft, inventory shrinkage, and administrative mistakes. In this article, our California business attorney in San Diego will discuss how best to prevent profit loss, including strategies such as retail security, staff buy-in, and correct cash handling.

Why Is Loss Prevention Important for a Business?

Loss may also be referred to as shrinkage, which reduces a business owner’s profits. In serious circumstances, it can cause problems that may threaten the business’ health. Losses can occur in any industry, but it is especially important to prevent loss in retail. If shrinkage becomes a big problem for a retail store, then an owner will have to raise their prices, which can cause damage to the company’s relationship with customers. Worse, a store may find it hard to pay its employees, buy inventory, and cover rent. For businesses with low-profit margins, such as grocery stores and liquor markets, the risk associated with shrinkage is very high.

It may therefore be a good idea to invest money and time into loss prevention. Over time, this can lead to greater profits and increased business growth. Directly combating loss can have other benefits for a business that go beyond protecting profits. For instance, if a business owner discovers that internal theft is a recurring problem, he or she can improve training or install security cameras by the cash register and company safe. On the other hand, if administrative mistakes are causing loss, then a business owner can invest in better software.

How to Identify Reasons for Retail Loss

It is important to educate oneself in the different kinds of loss in order to prevent them from happening. Having a good understanding of how loss occurs can help a business owner decide on a strategy to combat the problem.

Loss can happen by accident or as the result of a purposeful action. An example of deliberately caused loss would be theft and fraud. Administrative errors, such as software malfunctions, can cause unintentional loss.

Internal Theft

Internal theft, otherwise known as employee theft, occurs when an employee takes money or property from the business owner without permission. Internal stealing is actually remarkably common. Employees are 15 times more likely to steal from their company than outsiders.

External Theft

According to a National Retail Federation study, external theft is the culprit behind almost 37% of shrinkage. The primary forms of external theft are organized retail crime and shoplifting. Organized retail crime (ORC) is an intentional kind of theft perpetrated by two or more individuals. Shoplifting, on the other hand, is when an individual steals while behaving like a customer. It can be either planned or in-the-moment.

Employees should be made aware of return fraud, which is when a shoplifter steals an item before returning it to the store in exchange for cash.

Suppliers Fraud

There are different kinds of supplier fraud, which may also be known as vendor or procurement fraud. An individual may pretend to be a legitimate vendor in order to receive payment, then disappear without explanation. Also, an employee of a legitimate vendor may wrongfully increase the cost of services and goods, taking the difference for themselves. Vendors can also sometimes use extortion or bribes to take advantage of clients.

Administrative Mistakes

The reality is that sometimes people make mistakes, even experienced administrative employees. Also, outdated software can cause errors. These kinds of administrative errors make up 19 percent of retail loss. Administrative errors may be the result of overwork, poor training, or carelessness. Examples of administrative mistakes include overpaying vendors and mispricing goods.

Best Loss Prevention Strategies

There is no way to prevent profit loss entirely, but the following prevention methods can help a business owner reduce shrinkage. In the long run, these small steps can make a big difference.

Handling of Cash

While it has become popular among customers to pay using credit cards and payment apps, many consumers still prefer to use cash. In retail, unfortunately, this provides ample opportunities for employees to take cash from the register or miscount money.

Therefore, it would be wise to install an automatic cash handling system which will reduce the probability of errors or stealing. For instance, a currency counting machine counts cash for the retailer and is much faster and more accurate than a human.

A cash recycler is another great choice, because it keeps cash secure after counting it and making sure it is legitimate. It will dispense money, keep track of the amount given out, and calculate the amount that remains.

If a business owner chooses to invest in cash handling equipment, he or she should be sure to instruct employees on how to properly use it. In order to avoid theft, a business owner should ensure that cash is kept secure at all times.

Physical Location Security

It is important that a business owner take steps to secure their physical store location to reduce both internal and external theft. Depending on the size of the business, an owner may choose to appoint employees to prevent shrinkage or otherwise hire a loss prevention contractor.

The following are a few ways in which a business owner can secure his or her physical location:

  • Make sure that the store is lit well, with no dark areas where shoplifters can discretely steal merchandise.
  • Have as few exits as possible; it is easier for employees to monitor shoppers this way.
  • Position shelving to allow employees to have a direct view of the entrance.
  • Install security cameras to deter thieves.

Product Security

It can be a little difficult to keep products safe while not discouraging sales. Luckily, there are some security solutions that can help find a happy medium.

One popular method used to secure merchandise is electronic article surveillance, where a business owner can attach security tags to goods. When the item is sold, the cashier will deactivate the tag. If the tag is not deactivated and the item moves outside the store, an alarm will sound. This kind of system uses electromagnetic, acousto-magnetic, or RFID scanners to pick up the tag when it crosses the door threshold. RFID has recently become popular due to the tags containing an identification number. If an item is stolen, then the shop owner can identify which product was stolen.

Another security method is having a locked display case for expensive items, such as electronic or jewelry. However, a business owner should make sure that customers can still see the products inside the case.

Employee Buy-In

When it comes to preventing loss, it is important to make sure that employees are completely on board. Therefore, staff buy-in is a critical part of reducing internal company theft.

It is important that a business owner be open with his or her team about the impact of loss on the company. They should understand that profit loss can affect their paychecks or even jobs. By showing employees what is at risk, they may feel more encouraged to be involved in risk prevention.

A business owner should establish clear goals and rewards to keep employees motivated. Perhaps one can use a monthly bonus as an incentive for employees to meet loss prevention goals. It may also be helpful to hire employees specifically meant to monitor loss and identify suspicious behavior. In any case, it is a good idea to train normal employees in loss prevention so that they know what to do if they witness internal or external theft.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment Law

Most recent blogs:

What Is a Gap Analysis

What is a Gap analysis?

Gap analysis helps businesses compare current performance with desired goals, identifying inefficiencies. This method aids in developing action plans to bridge performance gaps.
SWOT Analysis Example

SWOT Analysis Example

Conducting an HR SWOT analysis helps identify strengths, weaknesses, opportunities, and threats within and external to an organization. This process aids in developing strategic HR actions aligned with the company's objectives.

Costco Hot Dog Price Story

The story about Costco $1.50 hot dog price began in 1993 when the Costco merged with Price Club. Costco's $1.50 hot dog price remains unchanged in 2024.

Request for Production of Documents, RPOD, CCP 2031.280

Starting January 1, 2020, California's civil litigants face stricter discovery rules under Cal. Civ. Pro. § 2031.280(a). All produced documents must now be labeled by request number, impacting both new and ongoing cases.
What is a default judgment

What is a default judgment

A default judgment is issued when a defendant fails to respond to a lawsuit, allowing the plaintiff to win by default. Understanding this process is crucial for both parties involved in litigation.
What is a quitclaim deed

What is a quitclaim deed

Quitclaim deeds offer a quick way to transfer property ownership without guarantees, distinct from warranty deeds. Ideal for non-sale property transfers among family or into trusts, they require careful legal consideration.
Sole Proprietorship Business License

Sole Proprietorship Business License

Sole proprietorships offer simplicity and fewer formalities for new business owners, with benefits like no separate taxes. Remember, personal and business assets aren't distinct, impacting liabilities and the need for proper licensing.
What is the most important part of your business plan

What is the most important part of your business plan

The executive summary shines as the pivotal element of a business plan, serving as a decisive factor for readers to delve deeper. A comprehensive guide on crafting an impactful business plan, focusing on unique strategies and essential components.
Easy Businesses To Start

Easy Businesses To Start

Unleash your entrepreneurial spirit with these straightforward home-based business ideas, from e-commerce to creative pursuits. Embrace the flexibility and potential for financial independence with diverse options suited for various interests and investment levels.
What is the standard deduction

What is the standard deduction

Understand the IRS standard deduction, a straightforward option for reducing taxable income without needing detailed documentation. Delve into eligibility, amounts for 2023-2024, and considerations for itemizing versus standard deduction.
How to get a business license

How to get a business license

Grasp the essentials of obtaining a business license in California, focusing on local and state-level requirements. Uncover specifics on when and why different types of business licenses are needed.
Why Do Businesses Fail

Why Do Businesses Fail?

Uncover the key factors contributing to small business challenges, including financial obstacles, inadequate management, and flawed marketing strategies. Understand the role of a comprehensive business plan in ensuring long-term success.
What is a BOC 3

What is a BOC 3

Understand the essentials of a BOC-3 filing for transportation businesses in California, detailing the designation of process agents for FMCSA certification. Learn the requirements, costs, and benefits of choosing the right process agent for your business.
Standard deduction vs itemized deduction

Standard Deduction vs Itemized Deduction

Understand the key differences between standard and itemized deductions to effectively reduce your taxable income and potentially save on taxes. Choose wisely to maximize your tax benefits based on personal financial details.
How to calculate net income

How to calculate net income

Unveil the significance of calculating net income for business profitability, a key indicator for financial health and decision-making. Understand the formula and practical applications for determining net earnings.
Itemized deductions

Itemized Deductions: What they mean on a tax return

Optimize your tax return by understanding the differences between itemized and standard deductions, crucial for minimizing tax liability. Learn the benefits and challenges of itemizing to make informed financial decisions.
What are intangible assets

What Are Intangible Assets

Discover the value of intangible assets like patents and trademarks in your business, crucial for strategic and financial planning. Learn how to manage and amortize these non-physical yet essential resources.
What is accounting

What Is Accounting

Understand the importance of accounting in monitoring financial activities and making informed decisions for your business. Gain insight into accounting fundamentals and its role in legal and tax matters.
Dysfunctional family

Dysfunctional Family: Key traits and impacts

Explore the impact of growing up in a dysfunctional family, where constant conflict, neglect, and various addictions shape childhood experiences. Understand common traits, the consequences on children, and the cycle of unhealthy parenting behaviors.
When Was the Great Recession

When Was the Great Recession?

Delve into the Great Recession's timeline, an era of financial distress from December 2007 to June 2009. Understand the causes, including the 2007 housing bubble crash, and worldwide effects.
When Was the Last Recession in the US

When Was the Last Recession in the US?

Review discussions on America's most recent downturn, comparing the impacts and definitions of Covid-19 and the Great Recession. Analyze the significant effects of past economic crises on US policy and business approaches.
What to Invest in During a Recession- 4 Ideas

What to Invest in During a Recession: 4 Ideas

Uncover effective strategies for investing during a recession, assessing personal goals and current market situations. Examine four robust investment approaches to manage through economic declines effectively.
Will the US Get Hit with a Recession in 2024

Will the US Get Hit with a Recession in 2024?

Experts debate the likelihood of a 2024 US recession, analyzing factors like the yield curve and consumer confidence. Predictions vary, with a focus on interest rates and tech layoffs impacting the economy's future.
How Long Do Recessions Last

How Long Do Recessions Last?

Learn about typical US recession lengths and influencing factors, noting recent trends with shorter durations averaging 10 months. Investigate how external factors and government decisions affect recession timelines, comparing historical data.
When Will the Recession End

When Will the Recession End?

Economists predict a mild US recession with limited impact on employment and spending. The duration and impact of the recession depend on Federal Reserve policies and business cycle patterns.

Contact our attorney.

Please tell us your story:

6 + 2 = ?