What You Need To Know About Purchasing As A New Business Owner
Insomnia tends to walk hand in hand with entrepreneurship, especially for leaders focused on trimming expenses and keeping their operations financially secure. As The 2020 Small Business Worry Index from SurePayroll shows, cash flow is the second biggest headache that keeps founders up at night, right on the heels of the economy in general. But you don’t have to lose sleep if you take proactive purchasing measures.
Want to run a leaner operation? Establish and maintain more efficient purchasing procedures. After all, purchasing behaviors and protocols can either save your company tons or create a raft of wasteful spending. You want the former, not the latter.
Start whittling away excess spending by overhauling your purchasing processes and leveraging these money- and time-saving techniques.
1. Join a GPO
Small business CEOs and purchasing agents routinely complain that they can’t seem to get the best deals on materials, supplies, or other needed items because they buy so little. An easy way around that problem is to increase your company’s buying power by joining a GPO, or group purchasing organization.
GPOs allow businesses to band together and receive volume-based discounts on products that they need. Suppliers happily work with GPOs because they get the benefit of being able to sell more at one time, often with a minimum guarantee. GPO members appreciate joining forces with like-minded companies so they can get terrific deals without having to purchase more than they need to get lower costs per unit.
Which GPO makes sense for you? Ideally, you’ll want to consider each GPO’s structure, as well as what types of products the GPO supplies. The GPO you choose needs to be cost-effective and offer attractive reductions on things you were going to purchase, anyway.
2. Renegotiate with Vendors
Practically everything in business is negotiable. That’s why it’s helpful for you to review your purchasing agreements with all vendors, looking for places and opportunities to negotiate updated contracts.
Renegotiating with vendors can be an effective way to significantly lessen your monthly outlay of cash. For instance, you might agree to sign up for a longer contractual period with a specific supplier in exchange for a lower per-widget rate. Or your vendor could offer to pass along savings if you buy more items from its company instead of buying those items from one of its competitors.
You may have to get a little creative during this give-and-take, but exploring possibilities can lead to added dollars in your account every quarter. It can also build your purchasing know-how so you can train your people.
3. Plan Your Purchases
We’ve all been guilty of impulse buying. That’s why we pick up $10 of candy and gum while waiting at the checkout. To be sure, small-scale personal impulse purchases probably won’t ruin your month. On the other hand, impulse purchasing for your business can eat away at your profit margins.
If your corporate purchases aren’t planned well in advance, you could fall into a cycle of overspending, not to mention end up with too much inventory in your warehouse or stockroom. Before you make purchases that seem last-minute or even knee-jerk, take a step back. Ask yourself why you have to buy the items that weren’t originally on your list. Are they necessary? Are you giving in to pressure or a “gut instinct” that goes against your objective data points?
As you become a master at planning your purchases, you’ll be in a position to share your newfound skill with your managerial teams. Help them see the value in projecting when they’ll need something, even if it’s as small as Post-it notes or printer ink cartridges. A little forethought can lead you to become a smarter steward of your revenue.
4. Go Digital or Environmental
Do you feel like you’re buying reams of paper, only to end up recycling most of them? Have you begun to wonder if it’s worth purchasing paper plates, plastic utensils, and disposable water bottles for your team? Many purchases that made sense once could be scrapped without having a negative cultural or operational effect.
Maybe you could invest in collaborative software to reduce your reliance on paper. Perhaps everyone could bring in their own water bottles, dishes, and utensils. Talk with your team about methods to turn up the efficiency by moving toward greener or more digital solutions.
Worried that personnel will feel like you’re pinching pennies? Explain to them that reducing unnecessary purchases frees up money for bonuses and other perks. Besides, it’s responsible business ownership to look for ways to maximize profits.
5. Pay Off Interest-Bearing Accounts Monthly
You may lean on the use of credit cards or a line of credit to make purchases. Many small businesses do. However, try to pay off your balances every month, or at least pay as much as you can. As of July 2020, the average interest rate for business credit cards hovered around 15%. High interest rates can erode your cost-saving measures quickly.
What happens if you can’t pay off everything and have to keep a balance? Pick up the phone to speak with your credit card company. You may be able to negotiate a lower interest rate, particularly if your credit risk is low and your history of paying on time is impressive.
Even if you’re sure your efforts won’t work, take this step. Many business owners are surprised to discover how flexible credit card companies can be. And even a small interest rate reduction can add up to hundreds or thousands of dollars per year back in your pocket.
Never again let purchasing worries stress you out. Instead, get a grip on your purchase spending. You’ll feel more in control of what’s happening with your organization — and hopefully reclaim those lost hours of sleep.