There are two ways to increase profitability: earn more and spend less. While raking in more profits is always an exciting proposition, it often makes just as much, if not more of an impact to the bottom line to concentrate on cost control.
Nearly every business owner and property manager can benefit from examining their material and supply budgeting process for ways to save. Here are a few suggestions for squeezing every last drop of value out of your procurement budget:
1. Inspect your business and property regularly. At first glance, this may not seem like a budget hack. But to budget properly, you’ll need an up-to-date understanding of what your business or property really needs. Regular inspections let you stay on top of your material and supply needs so you can plan ahead and make sound purchasing decisions that will save you money. They will also alert you to problems before they get a chance to escalate. Eliminating these issues early on can save you hundreds, thousands or tens of thousands of dollars. For instance, compare the cost of fixing a leaky skylight in a little-used room to that of having to replace an entire ceiling damaged by moisture and mold that has gone unnoticed for months.
2. Track and inventory your materials and supplies. Do you know what you spent for materials and supplies last year? Or the year before? Do you know exactly what you have in stock at this moment? If you don’t, you are likely leaking profits in many ways. Tracking your purchases and inventory helps you avoid unnecessary purchases, prevent employee theft, and makes budgeting for the year ahead so much easier. If you’re not tracking your inventory, consider starting now. Chances are you’ll be amazed at how much you’ll be able to shave off the bottom line.
3. Take advantage of incentive pricing. When you’re on top of your inventory and know what your business or property needs, it puts you in a great position to take advantage of price deals. You can save a lot of money by purchasing materials and supplies in bulk, or during special sales—but be careful, it’s only a good deal if you really need the items. Also consider that some suppliers may offer special everyday pricing for preferred customers or as a reward for certain types of payments.
4. Consolidate suppliers. Where do you purchase your materials and supplies? How many suppliers do you work with? Keep in mind that every transaction takes time as well as money. The extra processing time it takes to make multiple shopping trips and transactions can be costly in terms of time and labor expense. It’s often more cost effective to do business with one primary supplier for this reason.
5. Think long term. When purchasing materials and supplies, remember the distinction between price and value. Cheaper items may cost more in the long run if they have to be replaced often. Factor in not just the cost of replacing the item, but the labor costs as well when making your purchasing decision. At first it may seem like you’re spending more, but over time you’ll appreciate the difference.
6. Communicate. In nearly every aspect of business, good communication enhances profitability. This is definitely true where purchasing is concerned. If you have multiple people authorized to make purchases, consider appointing one person to be in charge of final ordering, or putting a system in place to avoid duplicate purchases. Also, keep the lines of communication open between your purchasing team and the rest of your employees so you can stay on top of budget requests and avoid unforeseen surprises and rush ordering.
It’s not uncommon for businesses to approach materials and supply purchasing as an afterthought. Just applying these budgeting ideas to your business can help streamline your purchasing process and enhance your profitability.
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