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Take Some 'Fat' Off Your Business

 

Businesses are a bit like people. When they get older they tend to put on weight. This weight usually comes from a lack of exercise – the exercise of reviewing business operations for those pockets of ‘fat’ that inevitably build up.

Most SMEs are focused on increasing their sales, and there’s nothing wrong with that. But another way to improve the bottom line is to cut expenses, and there’s always a way to do that in even the best run enterprise.

Look before you buy

Start by taking a look at everything you purchase, from stationery to electricity and from restroom soap to insurance. Whoever first said “It pays to shop around” summed up one of life’s biggest truths.

Review your existing loans. If your terms are higher than the prevailing market rates you might consider refinancing with a new lender. If you’re about to borrow money, look around and don’t just automatically go back to your present or recent source of funds. Read up on current interest rate movements and you can really save big money over time.

The same thing goes for your corporate credit cards. Those bits of plastic are always afflicted with premium interest rates and there’s plenty of room for you to shave a percentage point or two with a bit of competitive shopping around.

Make it a team sport

Trimming the fat can become a goal for your team. Make it a challenge for them to beat the price for everything you’re now purchasing. Assign different items to every team member and let them go to work.

First, be sure to give them the ground rules: every new product in the comparison must be equal to or better than the one you’re now purchasing. Price isn’t everything, but you’ll be surprised how easy it is to match the quality of most goods while reducing the price you pay. It’s a highly competitive world out there.

If you’re purchasing a group of items from a single supplier, stationery being a good example, the job’s a bit tougher because it involves comparing a large number of items. Nominate a selection of items on which the comparisons will be made. If you find a likely candidate to replace your existing supplier then mention that the word ‘discount’ just might encourage you to change to them.

Overheads, like rent, can also be varied by negotiation. First you have to become well aware of conditions in the marketplace and identify a few similar facilities that could be yours for a reduced rental outlay.

Take these back to the owner (or the owner’s agent) and let them know that you’ve found better terms elsewhere that would be a better proposition for you. Even if you’re not yet at the point of negotiating for a new lease you could well find this prompts an offer for better terms from your current lessor – maybe even one that includes your current as well as longer term arrangement.

Thin down your inventory

While you’re at it, take a look at your inventory. Remember that products just sitting there waiting to be sold are costing you money. If you’ve been using long production runs to minimise downtime you may find on analysis that you’re paying too much for the privilege.

Also look carefully at your communications. The Internet and cellular phones play a big part in modern business – and can cost your company a lot more than they have to. Regularly review your suppliers and don’t sign any long term contracts (more than twelve months) unless you’re absolutely convinced you can’t do a better deal next year.

Once you start trimming the excess fat you’ll find it’s a game that it pays to play. Make this corporate ‘dieting’ a regular part of your operations and you’ll be leaner in no time.

Until next week,
Mike Reddy
www.syb.com.au