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Budgeting Essentials Blog

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Are you implementing your Cost Saving Measures?

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Last week we talked about things you can do to save money in your business.  I hope that you have had a chance to dig in to those tips and have already put those tips into practice.  If you missed that post, you can still read it by CLICKING HERE.  This week I am sharing some tips on getting your savings analysis underway.

 

One obstacle that many people have, especially busy Small Business Owners, is getting going on a big project.  While you may not see cost savings as a big project, once you get into looking at your procedures, you could be overwhelmed by how many different items you have to look at to get through the process.  Even if you just have one vendor, to really make the process valuable you have to be very detailed and specific about how you analyze each situation.  So here are some suggestions on how to approach the project and get you going on your cost savings mission!

The first thing to keep in mind is that you don’t have to get everything done at once.  Reviewing your procedures and contracts should be done over a period of time.  Don’t fall into the trap where you focus so much on cost savings that you lose track of the rest of the things that are happening in your business.  The key for you to remember is that if you approach this methodically you will work your way through the whole business, even if it takes a while to get through everything initially. 

Once you commit yourself to working methodically, you need to pick a place to start.  To do this, you have to think globally about how your business is running.  Do you have some key vendors that you write big checks to every month?  How about a vendor with a big contract?  You can often renegotiate a contract that is not due for renewal by extending the length of the contract with new terms.  Do you have a contract that is coming due soon?  Don’t let any of your contracts on auto-renew move forward without your having a chance to review it. 

Remember this initial step is a global analysis, working on the details will come later.  Compile a list of your vendors.  When you have the list, give it a brief initial review.  After that initial review set it aside for a couple days.  Keep your list in the back of your mind and add to it as you think of additional items or concerns.  After a couple days, go back to your list and pick the vendor that has the most potential for cost savings.  This will typically be your biggest vendor or contract.  Keep in mind you have to start working on expiring contracts 60 to 90 days before the notice date occurs.  The notice date could be anywhere from 30 to 90 days before the actual expiration of the current term.  If you miss this date, you could find yourself locked in for another term without being able to adequately review the contract.

Once you make your choice, dig in to the details of the process around that vendor.  Don’t assume that because you initially set up a vendor procedure for a staff member, that they are actually following that procedure.  Don’t labor over which vendor you choose first, the important thing is to begin.  You want to review everything as you move through the process.  Sit down with your staff person who is handling this vendor process and do a critical review of that vendor procedure.  Make sure to ask this employee if anything they are doing does not make sense to them or if they think there is a better way to do something.  If you need additional information from the vendor, don’t hesitate to contact them.  They should be very willing to help you with your review. 

You should also contact your vendor’s competitors and let them know that you are looking for a competitive quote.  When you are doing this, there are a couple things to keep in mind.  You can use the quote as a gauge of how your current vendor is doing.  Even if you are happy with your vendor,  let them know that you are getting bids from other vendors and would like them to examine the terms you are receiving, including price and payment terms.  Most vendors will appreciate that you are giving them an opportunity to keep your business, even if it means adjusting pricing.  Just because you are getting bids, does not mean you have to change or even take the lowest bidder.  Lowest is not always best.  This process keeps your current vendors on their toes!

When you are getting the bids, remember that vendors will often initially quote a lower than normal price to acquire new business.  Then after the initial term, they increase their prices.  You need to keep this in mind so that you don’t end up spending more money in the long run to achieve a short term savings.  Chasing that lowest bid all the time can affect the quality of the product or service you are contracting for and use a lot of your time for each contract renewal.  Find a quality vendor and work with them for appropriate terms that work for both of you.

Make sure that the bids you receive include the same terms.  If your current vendor ships to you for free and the new vendor bids have shipping as an add-on charge, a quote that looks lower can easily become higher.  The same goes for payment terms.  If you currently have a net 30 account (you don’t have to pay the bill for 30 days) and the new vendor requires you pay net 10 (the bill is due in 10 days), you are losing the use of your money for 20 days, unless the vendor has an adequate discount for paying in 10 days.

As you can see, to do this right, there are a lot of details to consider.  That is why you don’t want to try to do everything at once.  Plan the analysis time between your normal busy times.  You won’t do a good job of this if you are in your busy times.  If your business is consistently busy, you may have to pick a less busy time or set aside specific 30 minute periods of time across each week for working on this project. 

Getting started is the hardest part, begin today!

Copyright

© 2017 Dan Heiland 2017 Kat Heil, LLC

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