Watch The Pennies…

Have you ever noticed how as soon as you break a note, it disappears very quickly from your wallet? By some magical force as soon as notes turn into coins they vanish in the blink of an eye. There is safety in numbers where money is concerned with the larger notes being the most stable.

But if you were to empty your wallet of all coins everyday and put those coins into a tin you would also be amazed at how rapidly they accumulate. I did this for just one month and ended up with $75.00 in small coins at the end of that month.

Business expenses are no different. From very humble beginnings they rapidly snowball into unimaginable sums, sometimes as quickly as mere weeks. In business, it truly does pay to watch the pennies. Even tiny expenses like a couple of pens and some stamps can add up, especially if you are not watching or counting and they occur over a period of time. A spending habit in your business could quite literally break the bank.

Mike had a business that was always cash strapped. They paid all their bills but for some reason they never banked as much money as they thought they should. It just didn’t make sense, their sales were high, their margins reasonable where was it all going to?

Mike engaged an Instant Business Success Coach to help locate the source of the financial drain. One of the first things we noticed about Mike’s business was that he wasn’t accurately recording his business expenses. Sure, the big items like rent and wages were there but he wasn’t keeping records of miscellaneous purchases and petty cash.

Another problem was that just about anyone in his business was able to make purchases and nobody was accountable for it. So when the stationary ran low one of his employees would just run across to the local newsagent and buy whatever they needed. The same occurred with just about any supply and before long the pennies all stacked up to a significant amount.

We suggested that Mike should immediately put just one person in charge of purchasing on behalf of the company and that person also run a petty cash tin. Mike agreed that no one should spend another cent without a receipt because he was missing out on valuable business deductions. It was a simple solution that would allow Mike to accurately track where his money was going.

After the first month of this new system Mike discovered that his business was spending a lot of money on miscellaneous items that they could purchase cheaper by buying in bulk. He changed suppliers for some items and purchased on a quarterly basis. Immediately his business benefited from a reduction in operating costs.

When most businesses think of cost reduction they immediately look to the big items and try and save on those. But in most cases it’s the myriad small expenses that are not being tracked that are to blame. The very worst kind of expenses are those that result from poor planning. Things like the stationary running low and nobody realizing until something that’s needed is not there. This then forces the business to buy the product from the nearest supplier often at non-competitive prices. A continual habit of doing this can drive up costs over 30%, than if proper planning and order were in place.

Creating an expense tracking and purchasing system is wise investment for any business. Not only does it give you the information you need to manage your business competently, it also has a positive impact on driving down costs just by being there. When you keep your eye on the ball and just one person is accountable for costs they naturally decline.

The worst situation is to have no purchasing system and allowing employees to purchase on behalf of the company anything they require. Often items that one person sees as essential really are optional. It’s your money so make sure you retain control of the purse strings at all times.

To find out how you can increase profit by effectively managing your costs in a matter of weeks talk to your Instant Business Success Coach today on (02) 9411 1345 or email info@instantbusinesssuccess.com