Having worked with a lot of small businesses, for many years, I am always surprised by how many of them are literally pouring money down the drain. Now I’m not talking a little bit of money, I’m talking a huge amount of money.
How would your business look if you had an extra $50,000 a year on the bottom line? Imagine if you could improve your profit by twenty five percent (or much more) a year? Is this really possible? Absolutely. Often it just takes a few small changes, perhaps increased awareness about the money going out, and you will be amazed at how much you could be saving.
Here are seven common mistakes that small businesses make when it comes to managing the money going out, and what can be done to slow the flow:
1. They don’t negotiate
It is surprising how few business owners actually negotiate. I work with small business owners who negotiate or try to wheel and deal on everything and they get a deal more often than not. I have one client who keeps a track of how much they manage to negotiate each year. Last year, they saved $50,000 simply by asking the question “is that the best price you can do?” Now this businesses total turnover is $500,000, so a $50,000 saving is big money. My advice – always ask for a better price, regardless of where you are buying from. You can even negotiate at the large department stores. Who knew? Bottom line – you don’t ask most people won’t offer.
2. They don’t keep track of the “small costs”
Little things like stationery, consumables, postage, petty cash etc all add up. Whilst I don’t encourage people to become misers, I do suggest that business owners keep track of these items. Small costs add up, it is easy to have wastage. Having an account with places like stationery suppliers is a good idea because you get a bill once a month that shows exactly how much you spend. This is very confronting. When it is going out in dribs and drabs it is much easier to underestimate exactly how much you are spending.
3. They are pressured into buying things they don’t really want (or need).
I see this all the time, business owners who have bought stuff they never use, or didn’t really want in the first place, simply because they couldn’t say no to the sales rep. Really? My advice here is to harden up. You have to learn to say no, regardless of how nice the sales rep is. Sure, I know it can be hard to say no, but if you don’t develop this skill – you will do it tough in business. Find someone who you know is really good at saying no and get them to mentor you through it. Ask to sit in on a meeting with them – see their style, see how they work, see how they say no. Get them to come and sit in on a meeting with you and a sale rep and they can debrief you after. However you do it, toughen up, learn to say no.
4. They pay late fees
A surprising number of businesses pay way too much in bank fees and credit card fees simply by making payments after the due date. The same can apply with suppliers. Some offer discounts for early payments so we should always take advantage of them if cash flow permits. Often late payments are not related to cash flow, they are simply a sign disorganisation. I always suggest setting up automatic payments for any item where you can be charged a late payment. Save $50 a month on late payment fees and you have just saved $600 a year. For the sake of taking five minutes to set up an automatic payment, this is clearly a good move.
5. They don’t get their staff to “get on the program” in terms of expenditure
Managing expenses seems to be the responsibility of the business owner, but from my experience the best results are achieved when everyone is involved. Let’s assume your operating costs are $500,000 per year and you have 3 staff. If you made it a goal to reduce expenses by 10%, or $50,000, get your team involved in coming up with ways to save money. Let them come back to you with ideas and they will. Most importantly, this becomes a group exercise where everyone is involved, as opposed to the boss telling the team to turn off lights, don’t make unnecessary phone calls, don’t waste paper etc.
6. They are lousy at bookkeeping and record keeping
I am continually surprised by the number of small businesses that I encounter that have little to no idea about their financial position at any given time. They don’t know if that are making money or losing money, they don’t know how much they owe or how much they are owed – the absolute basics of any businesses. From my experience, ignorance about your financial position almost always works against the business and that is when the money slips through the cracks (I think I have used every money wastage metaphor in the book now).
7. They don’t get quotes
Last but not least, you should always get quotes or at least an estimation. How many times have you received a bill and been blown away by the cost ( I recently came across a small tourism business that turned over $60,000 in the first year of operation. Their accountants bill was $28,000. Seriously. Apart from questioning the ethics of the accountant, the business should have got a quote up front. We should all get quotes for everything – and if the supplier can’t give a firm quote – put triggers into the work so that you can be notified of costs. What I mean by this is that you get the supplier to make sure they let you know on a regular basis what the costs are up to – and you can decide if you want to keep going. When costs are accountable – they tend to be less.
Once you have figured out how much you can save, start putting that into perspective. If you can save $20,000 a year, what does that translate to you? How many customers does that equal? How many extra hours do you have to work for that $20,000? Put it into terms that mean a lot to you. This should give you the added incentive to make any changes that need to be made.