Loss Prevention Procedures and Their Importance in Your Small Business
Tips and Tricks for Loss Prevention for Small Businesses
Loss prevention is an essential aspect of small business that, when implemented well, can benefit it in many ways, such as reducing shoplifting and fraud, minimizing inventory discrepancies, increasing customer and employee satisfaction, and increasing organization within your business. Sadly, this isn’t an aspect many small businesses are either very knowledgeable about, or they just forget about what all it consists of.
What is Loss Prevention?
Loss prevention refers to any practices and policies businesses have in place to help guard against fraud and theft to preserve profits.
Let's look at some loss prevention facts:
According to FAU’s College of Business:
“42% of fraud in small businesses was caused by a lack of internal controls that are meant to mitigate fraud.
It is estimated that 60% of all fraud losses to small businesses are not recovered.”
“Small businesses had the highest median loss of $150,000 compared to larger companies.”
“Close to half (44.5%) of retailers say that their loss prevention budgets were increased in 2022.
Stores lost an estimated $86.6 billion to retail theft in 2022. Predictions by CapitalOne suggest this amount could reach $115 billion in 2025.”
“64% of in-store sales, service, and support retail workers have experienced theft firsthand.”
“To make up for losses due to theft, most retail small business owners have increased prices (64%) and/or installed security cameras (50%).
The majority of small business retailers (79%) said their monthly losses from theft were between $500 and $2,500, and 10% said theft losses accounted for more than $2,500.
Three of the five states that are the least impacted by retail crime are located in the South, namely Mississippi, Georgia, and Alabama.
The majority of small business retailers with a brick-and-mortar shop (52%) said the frequency of theft in 2023 increased or stayed the same compared to previous years.
85% of small business retailers said they experience theft at least once a year, and just 5% of small business retailers report never experiencing theft.
Retail business owners with one to 20 employees were the most likely to experience theft on a daily basis (17%), and businesses with 21 to 30 employees were most likely to experience theft a few times a week (31%).”
Fraud in Small Businesses
There are many ways fraud can happen in your small business and examples of how to look out for them:
Return/refund fraud
Phishing/email scams
Money fraud
Employee fraud
Invoice/payment fraud
Return/Refund Fraud
This type of fraud can occur when customers come into your business and either attempt to return stolen products to get money from your business, lie about not receiving an item they ordered online, return the wrong products, or exploit the return and refund policies your business may already have in place.
To avoid falling for this type of fraud, make sure your business has clearly defined return policies for products, and use technology to your advantage to keep track of returned packages if you do business online and keep track of your inventory to know what your business has shipped out and what it hasn’t for online sales.
Phishing and Email Scams
These scams are becoming increasingly popular amongst hackers and those looking to take advantage of your business. They are especially dangerous due to their personal nature at times since they look like they come from people you may personally know and work with. These scams happen when hackers send emails to you or your employees that look like they come from legitimate sources and ask for sensitive information such as passwords, bank account numbers, IDs, or even company credit cards. They usually ask for this information by asking you to click on a link to “verify” the information, which makes you go to a web page where they log in and steal the information you enter. Some phishing emails can even plant viruses on business devices that continuously monitor and steal information in the background.
To avoid falling for phishing emails, train yourself and your employees to notice signs of possible phishing tactics. Do not click on links within emails, and verify the source of emails before sending anything back.
Money Fraud
Money fraud happens when a customer uses fraudulent money, bad checks, or stolen credit/debit cards to pay for products and services.
To avoid falling victim to money fraud schemes, ensure you and your staff know the differences between fake and real currency. Keep tools handy for checking bills, such as counterfeit pens that react differently to counterfeit bills from real bills.
Employee Fraud
We all want to trust our employees, but sometimes they can be the problem. Employee fraud is when an employee finds ways to scam your business through theft, asset misappropriation, and insider threats.
To avoid employee fraud, regularly audit and monitor sensitive information and inventory numbers. You should also have internal controls in place to help regulate procedures such as handling cash, security, and tasks involving sensitive information. It is also important to run background checks on prospective employees who will have access to these things.
Invoice Fraud
This happens when customers create and send fake invoices or payment statements that make it seem like your business owes them money for products or services, but you don’t. They can pose as merchants and suppliers your business works with regularly and send invoice “reminders” that you owe them money or that it’s time to place orders with them that your business regularly does.
To avoid invoice fraud, your business should keep track of financial transactions and look out for unusual or unauthorized activity. You should verify vendor information before paying and implement secure payment methods to keep everything safe.
More tips on how to improve your business’s loss prevention strategies:
Install security systems throughout your business.
Create security policies within your business.
Make Loss Prevention part of your business’s training process for all employees.
Avoid browning unsafe websites and avoid clicking on links while using business devices.
For more information on loss prevention strategies and examples, check out these articles:
Implementing loss prevention strategies is vital to maintaining a safe, secure, and profitable business. They not only keep your business safe, but they keep you and your employees safe as well. They help prioritize security and organization, which will help your business thrive as it grows. For more information on how your business can improve its loss prevention policies and procedures, contact Comprehensive Consulting Solutions for Small Businesses to schedule a free consultation!
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