The Importance of Financial Discipline Part 1

Part 1: Twenty ways your business can save money

When you undertake to start a new business you often have to begin from the floor and build up from there.  You may have leveraged your savings, or borrowed money, or have obtained an investment from an Angel Investor.  Either way, it becomes vitally important that you are a good steward of your financial resources.  The most common failure mode of new business ventures is “running out of money”.    Here are some simple suggestions on how you can be a pro at managing your costs.

Here are 20 simple cost-cutting ideas for businesses:

1. Consolidate purchases. You might be buying the same goods from different suppliers. Consolidate purchasing to maximize discounts through bulk buying power.  Many suppliers can offer a wide variety of goods.  Your office supplies vendor may also sell break room, janitorial, and health and safety supplies.

2. Cut the paperwork.  Reduce paperwork by requesting monthly consolidated invoices to reduce administrative costs.

3. Demand a reason.  Don’t accept a price increase without challenging it.

4. Get a second opinion. Obtain alternative quotes on everything. Advise existing suppliers that you are going out to bid, and give them a chance to reduce their prices.

5. Call in a bad guy. Don’t allow the person who is in daily contact with a supplier to negotiate price. Use the good cop/bad cop approach. The “bad cop” removes emotion from the process, and the “good cop” can preserve the established, day-to-day relationship with the vendor.

6. Ask for ideas. Take advantage of your suppliers’ expertise by asking them for suggestions to improve the way you work together. Would ordering twice a month instead of weekly reduce their administrative costs? Could they pass the savings on to you?

7. Insurance. Contracts that provide incentives for brokers to find the best coverage, as opposed to accepting commissions from insurance companies, typically lead to large savings and improved coverage.

8. Make space. Reduce your stock levels and encourage suppliers to hold stock.

9. Review product specifications. Ensure that products being used do not exceed requirements. Can you use secondhand pallets for transportation? Recycled toner cartridges?

10. Examine cleaning procedures. Are factory items such as mats being cleaned more often than necessary? You might be able to reduce the frequency of cleaning and still maintain safety standards.

11. Don’t let money go to waste. Your garbage bins might be emptied well before they are full. Can you cut back on the number of weekly or monthly collections? You also might have the opportunity to recycle by simply setting up bins in break and kitchen areas.  This applies to all your business waste.

12. Keep your feet on the ground.  Understand how you are charged for small-package freight. Local services might be best for early-morning deliveries, while worldwide carriers such as FedEx and UPS might offer lower prices for local delivery of letters and packages scheduled for later in the day. Determine which services will be most effective, and establish guidelines for your staff.  Rarely send a parcel within Michigan by next day air as it is very unlikely that your mailing will ever see the inside of an airplane for an in-State delivery.  A ground shipment is generally just as fast.

13. Watch out for automatic renewals.  Contracts for leased equipment, such as copiers, automatically renew. This automatic rollover is called an “evergreen clause,” and it locks you into subsequent years at the same terms as the original lease. Typically, you must notify the leasing company, in writing, 90 to 120 days before the expiration date to avoid an automatic renewal.  Often these agreements have automatic price escalation too.

14. Beware on service agreements, too. These often also have evergreen clauses and need to be terminated in writing during a specific time window. To make things even more confusing, termination notification periods for service agreements vary from the periods used in the lease agreements. The window is typically 30 to 90 days before the expiration date.

15. Try “brand X.”   Use suppliers’ own brands of products. They can be priced as much as 30 percent lower than name brands.

16. Pack it up. Cartons printed with unique information, such as a company name, are expensive. Instead, consider using less expensive plain cartons sealed with customized tape or printed labels.

17. Cut and coordinate. Clean up your database to reduce returned mail. Coordinate your marketing mailouts to take advantage of bulk rates.

18. Shoot the messenger. Investigate alternative methods of disseminating information. Can you use e-mail rather than snail mail? There are companies that specialize in distribution methods to suit your preferences.

19. Stop the presses. Always use standard paper sizes. Although printing larger quantities at one time means lower per-item costs, if you only need 7,000 brochures, it’s still cheaper to order that number at $3.30 per unit than it is to pay for 10,000 at $2.80. Companies tend to over-order to get lower prices, but then don’t use the stock.

20. Toss the excess.  Don’t pay to store boxes simply because you haven’t worked out whether you need to keep them. Review your storage costs!

Wes Thompson is the Managing Director for Michigan with Expense Reduction Analysts, a consulting company that specializes in reducing overhead expenses. He is also a member of The Business Improvement Team, a consortium of Southeast Michigan consultants who can address all aspects of operational improvement.  He can be reached at (248) 672-3504 or wthompson@expensereduction.com