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Running a small business is challenging in even the best of times, but in a roller-coaster economy, every dollar counts. Still, while many business owners scramble to find additional sources of revenue, that extra capital may be right within current operational expenditures, according to cost management expert Terry McElfresh.
McElfresh, the chief operating officer of Alliance Cost Containment in Louisville, Ky., recommends that small businesses take the following five steps when tackling their annual operations budgets to maximize savings.
1. Challenge vendors to produce year-over-year cost savings.
“Small business owners often think they have a great deal with their current vendors,” McElfresh says. “While rates are locked in with suppliers on the basis of initial value, many owners don’t realize that after a few years or even months, it’s often not a good deal anymore.”
Three years is the general time frame for when it’s best to begin reexamining contracts, and when it is time for your next renegotiation, challenge your vendors to produce contracts that demonstrate year-over-year fiscal incentives to maximize the value of your relationship.
2. Closely audit any recovery inaccuracies in your contractual agreements.Some companies turn a serious profit on vendor contract abuse, and it’s often in the most seemingly innocuous areas within a contract.
“In a very large percent of legal agreements, there are inaccuracies with billings and price changes with any vendor,” McElfresh says. “It takes time and often expertise to compare and contrast statements line-by-line with contractually-outlined rates and services.” In a nutshell: monitor those billing statements like a hawk.
3. Turn your accounts payables into a miniature profit center for your business.
There’s money to be made from smart handling of your accounts payables with certain vendors.
“What a lot of people don’t realize is that there are services out there that not only expedite the auto-billing process, but can also secure additional savings for simply paying invoicing with a merchant card,” McElfresh maintains. Discuss potential incentives with your vendors like early payment, which may yield savings in each billing cycle along with fees collected with a merchant card.
4. Review your non-medical insurance policies to ensure that you’re getting the best rate.
From workers’ compensation to property and casualty liability, small business owners pay a fortune in insuring their businesses from hazardous situations. But it’s important to remember that insurance providers are also trying to turn a profit and won’t offer you the best possible rate for your needs without prompting. “The non-medical insurance industry still works at 40 to 60 percent gross margin, and on average there’s a 15 to 20 percent overpayment by subscribers,” while staying with the same coverage as well as broker, McElfresh says.
5. Consider hiring a professional third-party cost reduction firm.
Many small business owners are aware of the measures that can be taken to ensure operational cost savings but lack the time and resources to commit to steady self-monitoring, analysis and renegotiating.
“Hiring a third-party cost reduction firm often solves these issues while paying dividends over time,” McElfresh maintains. If cost is an issue, remember to look for a firm that only profits when you profit: a firm with a fee contingent on securing the savings you’ve hired them to find. Additionally, look for a firm that can leverage their own considerable buying power in your favor by establishing contracts with vendors at significantly better rates than you’d be able to achieve on your own. It’s a win-win relationship.