In today’s tough economic climate it is more important than ever to save money wherever possible. This is doubly true for a small business or start-up business whose cash flows are not yet fully established. Here are 5 great tips on how to save money as a small business.
Money Saving Tip #1 – Pay strict attention to metrics, especially your sales volumes and expenses
It is generally acknowledged that one of the greatest businessmen of the modern era was John D. Rockefeller. Mr. Rockefeller founded Standard Oil in 1870 and went on to become the world’s richest man and first American billionaire, and is often regarded as the richest person in history. However, when Mr. Rockefeller was just 16 years old he landed his first job. What was that job that set the foundation for a business career as illustrious as any man ever had? He became an assistant bookkeeper. John Rockefeller earned just $50 salary for his first three months’ work. But what he truly gained was an appreciation for financial detail and discipline.
So it is with your small business – you need to have a detailed understanding of what your finances are at any given time. Note, I said a detailed understanding of your finances. The most important numbers to focus in on are your top line sales volumes and revenues and your bottom line expenses. By focusing on top line sales volumes and revenues you get an appreciation of what your business is actually able to earn in a given time period. This assists in setting budgets and goals. Focusing on the expenses gives you a realistic idea of how much money you need to earn to keep your business afloat. It is a good practice to review your finances in detail every single month. This is the first step in understanding where you may be able to save the most money in your business.
Money Saving Tip #2 – Cut out the olives
Robert Crandall worked at Eastman Kodak, Hallmark, and TWA before joining American Airlines in 1973. In 1980 Mr. Crandall became president of American. He was a notorious cost cutter and helped the airline survive and even thrive in a period of deregulation. One of the most famous and oft told stories of Mr. Crandall’s business thrift has to do with the salads served on American Airlines flights at the time. You see, Mr. Crandall carefully examined the companies finances and discovered that the addition of olives to the salads was costing the airline company a great deal. Figuring that no one would really miss a few olives in their salad, Mr. Crandall ordered that the olives be removed from the airlines salads. His savings? More than $100,000.
The lesson for your small business is obvious. Look for items that you are spending money on, but that aren’t giving your customers or clients any appreciable extra value. When you find them, cut them.
Money Saving Tip #3 – Renegotiate with vendors
Every business is the customer of other businesses. You get all sorts of supplies from other companies that help you to conduct your day to day business. No matter what the status of your current relationship – whether you have a long term contract, or whether you are just repeat buying the same items out of habit – it pays to examine and renegotiate with vendors on a continuing basis.
Are you getting the best deal on your phone service? Are you sure? Have you considered switching to a VOIP (voice over IP) phone system? What about using Skype for either internal or external communications? Each system or expense that comes up in your business is a potential area of savings. Challenge your vendors to sharpen their pencils and give you their best deal. Here are a few ways you can save:
Ask for volume discounts – even if you aren’t at the exact volume yet. If you grow you will hit higher volumes.
Get quotes from multiple vendors and then compare them – and share them with the vendors to let them see what your costs are with their competitors.
Consider alternative solutions. For example, maybe your salespeople can share a room on a trip instead of booking two separate rooms.
Money Saving Tip #4 – Start a website
We are very fortunate to live today in an era where just about anything can be sold online. From real estate to retail to consulting, it has become natural for many people to turn first to the Internet when investigating or purchasing goods and services. In the early days of the Internet, small businesses were excluded from competing on the Internet due to high complexity and the costs associated with hiring experts and programmers to create a viable website. This is no longer the case.
One can easily find a freelance web designer for a fraction of what it used to cost by using services such as Elance.com. This is a marketplace where designers and programmers compete to earn your business. You can easily get quotes for website work in a short period of time and also see references and prior work samples to aid in your decision.
You will also need to work together with a web hosting company to house the site. Daniel Foster is co-founder of UK web hosting company 34SP.com. Mr. Foster suggests, ”Do a comprehensive search on Google for the company you are considering. Look for reviews from current or former customers. You can also use forums such as web hosting talk to help inform yourself and narrow down your choices.”
Shopping around can help you save money on everything from your site design to your domain name to your web hosting.
Money Saving Tip #5 – There is only one boss
Sam Walton is a legend in business and in saving money. Having grown up during the Great Depression, Mr. Walton understood the value of a dollar. Three days after graduating from college, Mr. Walton was hired by JC Penney as a management trainee in Des Moines, Iowa. Taking his knowledge of retailing and his cost cutting mentality and focusing them on the retailing sector, Mr. Walton founded Wal-mart in 1962. The first Wal-Mart opened July 2, 1962 in Rogers, Arkansas. Wal-Mart eventually became the world’s largest retailer. And Sam Walton was at the head of it all. Leading the company by example. The rest is cost cutting history.
The true lesson that comes from Sam Walton and Wal-mart for your small business comes in the form of a quote. Never forget what Sam Walton himself said, ”There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” Don’t ever cut costs at the expense of angering or disappointing your customers. Those savings will be short lived.