Many people gloss over their cost saving practices but it really is extremely important. New and small businesses have got to find a way to create a competitive edge over bigger more established companies. By far the easiest way to create a competitive edge is to be less expensive than they are. By meticulously analyzing every business outgoing and by being more efficient than your competitors it stands to reason that you will be able to afford to sell your products for less than they can. Never stop looking for ways to reduce expenditure, once your business is up and running, find ways to reduce your business running costs.
Trade shipping companies off against each other, as the amount of items you dispatch increases, ask for rate reductions from your shipping company. If they will not reduce your rates, offer your business to other shipping companies. Shipping is very competitive and there are always rate saving deals to be done.
Credit card payment processors consider new ventures high risk because of charge-backs and the potential that you could go out of business leaving them with warranty / guarantee claims. Consequently, you may end up paying 4% -5% of your credit card turnover to your payment gateway. The thing is, they will not reduce these rates unless you ask. As soon as you establish regular sales patterns ask for reductions in your credit card processing cost. Once again, if they refuse to reduce your rates, as long as your figures are reasonable and you don’t produce lots of chargebacks, your business can be touted around the market for a better deal.
Gone are the days when staying with your bankers will increase your credit worthiness. Bankers are far less likely to form personal relationships with their customers; computers tend to decide borrowing rates and bank charges so personal relationships are not likely to make any difference. Ask your bank for reductions in charges and borrowing rates and if not received, go elsewhere. Once again use review sites to establish which banks are doing the best business banking deals. Keep an eye on these figures and change your bank or aspects of your banking when a good deal presents itself.
For example: Pakatak makes on average three overseas money transfers per day. We were paying our bank £25 per transaction and when we asked for a reduction in our transfer costs, they refused. We decided to take the money transfer part of our banking to an FX (foreign exchange) company who now charge us just £10 per transfer. Furthermore, we fare much better in the foreign exchange rates we are given, which on average saves us a further £5-£25 per transaction. We have therefore been able to reduce this single business expense by £800-1000 per month.
If you like the service you receive, you have built up good personal relationships and what you get represents ‘value for money’, don’t change suppliers to simply save a few quid. However, if you can equal the service levels and save a significant percentage, in many cases changing your suppliers has got to be a consideration. Business is far less personal these days, exercise your right to shop around and reduce costs wherever and whenever possible.
Don’t compromise on your accountant. Save money in every other way possible but a good accountant will save you the money you pay them many times over. I have seen good businesses fail on the back of poor accounting advice. I have also seen good businessmen ‘cleaned out’ and demoralized by the pursuit of the ‘tax man’ once again due to the lack of good accounting advice.
Personally, I like to have up-to-date information at all times, so when starting a business I use an accounting package from the outset. There are several accountancy packages on the market that can be purchased relatively inexpensively and the information they provide can be invaluable. Furthermore, if you get into the good practice of recording every transaction more or less as it happens, you won’t get a backlog of work to complete. The information provided can be used by your accountant and should in-turn reduce your annual bill.
Before you purchase anything shop around and try to find it for less money. There is no excuse for paying full retail price these days, the internet has opened a competitive marvel where any prospective purchase can be thoroughly researched and prices significantly reduced.
Take full advantage of the search engines and make specific searches for products using marginal search terms in the hope of turning up a non-mainstream supplier who sells the product or service for less money.
Use ebay to its full potential; while ebay and mainstream internet prices are starting to even out, ebay is still excellent for less popular consumer items. Your big brand names like Sony, Panasonic, Phillips etc, etc, don’t tend to work out a lot cheaper on ebay these days but, if you are looking for less mainstream items, there are still big savings to be made. If you’re really enthusiastic, look for auctions ending at unsociable times of the day. eBay auctions increase heavily in the last few minutes, it therefore stands to reason that prices tend to finish lower when there are less people active on the internet. Also, look for auctions that are poorly described and / or lack pictures, as long as you are familiar with the item being sold, poor descriptions and auctions without pictures tend to get overlooked or ignored by a lot of bidders.
Research your stock purchases continually, trying not to compromise on quality, look out for similar / same products at lower cost. As the amount of business you do increases ask your suppliers for discounts, they will not want to loose your business and will often oblige. Ask regular suppliers for free samples of other products in their range, most e-commerce packages make it possible to load new products in just a few minutes and you may just stumble on a new fast moving product line without spending any money.
Your premises will become one of your biggest overheads; don’t take premises until it’s absolutely necessary. If you can work from home, continue to do so for as long as possible. You already pay light, heat, power, rates, etc. running your business from home will only increase these bills by a small percentage – taking business premises duplicates all of these expenses and adds rent or mortgage repayments on top.
When it’s absolutely necessary to take premises try to find a facility that minimizes the cost exposure by perhaps renting some of the space to another business or look for a location where you may pick up some passing retail trade.
Painstakingly analyze every business expense large, small or indifferent and ask the following questions:
- Why did you pay the money?
- Was the payment absolutely necessary?
- If necessary, can the amount paid be reduced in the future?
For example: we noticed we were spending on average $80.00 per week on bubble wrap and packaging materials. We decided to buy a heavy-duty shredder that can shred cardboard. We now use the shredded paper and card in heat sealed plastic bags to pack our parcels therefore reducing the amount of bubble wrap required by 60% and at the same time reducing our waste disposal cost by 25%.
The cost saving process may seem obvious but even the best organized among us forget or put off our cost saving procedures. However, continually analyzing and reducing costs will not only dramatically increase the chances of your business succeeding but, if implemented on an already successful business, will seriously increase operating profits.