When you start a small business, every dollar is precious.
(article continues below)
Each and every penny spent in one area of the company is at the expense of another area where that money may have been better utilized.
Entrepreneurs typically understand the importance of cautious spending, especially when it comes to direct product costs. Unfortunately, many small business owners throw spending caution to the wind when dealing with costs not directly related to the product.
Save Money on Office Supplies
The most basic example of indirect spending is office materials. It's impossible for a small business to exist without spending money on paper, pens, toner and ink.
Usually this purchasing function is handled by someone other than the purchasing department, often times it's the Office Manager's job. While you're not going to save thousands of dollars by improving your office material purchases, you can make incremental savings that add up over time.
Apply the same scrutiny to these kinds of purchases that you would place on direct product costs (raw materials, packaging materials, labor). Try reusing your paperclips and use the backside of old papers.
Saving paper will also result in less waste. Make sure to spread this way of thinking throughout your organization. If you can cut down your paper usage by 30%, you'll see noticeable savings.
Save Money on Shipping
Another area of small businesses where money is often wasted is on the shipment of goods. Most small businesses go with the least expensive of the three main postal carriers. When it comes to putting the product into boxes, however, money is often thrown right out the door. Is your shipping department using the correct amount of packaging bubble, peanuts and tape each time they ship a product? You definitely do not want to send out product that will break during shipping, but you also do not want to send product out with more material than is required. Work with your shipping department to create tests and simulations to see if your packaging is overkill. FedEx and UPS offer similar tests to determine if your packaging design is safe for shipment.
Recently I consulted for a company that shipped out cases of 6 to 12 glass bottles. I observed skyrocketing shipping costs, due to high rates of return. The packaging design was inadequate and breakage was common in about 10% of all shipments.
A broken final product delivered to the customer is the costliest of all defects. Immediately, I encouraged the team to take action. Along with our shipping company and packaging sales representative we came up with a design that was 25% cheaper and had 0% breakage upon delivery. Making sure your shipping design is appropriate is extremely important.
Save Money on Outside Maintenance Services
Another spending problem I see in small businesses is the costs of outside maintenance services.
One company paid a cleaning service $600 per month to clean the office and bathrooms. At the same time the company was cutting hours from its factory employees. As it turned out, two of the company's factory employees were willing to take over cleaning duties in exchange for the extra hours of work. This small move wound up saving the company almost $400 per month.
Equipment repairs are another service, which small businesses tend to lose their shirt over. When copiers or production equipment break down, calls are made to outside companies who charge an arm and a leg for minor repairs.
While some of these costs are unavoidable, there are preventative maintenance techniques that can be used to reduce the frequency of breakdowns. In addition, you may have employees in-house who know how to fix certain parts of your machines. Be sure to ask around before coughing up the big bucks to fix your machines.
This way of thinking should play into the purchasing decision of these pieces of equipment. When deciding between a new piece of equipment and an old piece of equipment, warranties and expected repairs should be calculated into the decision. Any small business purchasing an expensive piece of machinery should be sure to do their homework.
Minor Savings Add Up to Major Savings
While many of these suggestions will only yield minor savings, they will add up over time. In addition, by starting out with this mentality your company will be in a better position as it continues to grow. By planting these concepts early on in your company's history, it will become second nature as these purchasing decisions become larger and more expensive.
There are too many important areas to spend money. Small businesses can ill afford to waste dollars on the wrong things.