In part two of our article on strategies to recession-proof your business, we focus on three key steps: curbing non-essential spending, managing inventory costs (including the supply closet!), and negotiating supplier concessions (with everyone except us, of course!).
Secret#3. Curb Non-Essential Spending
A recession is a great excuse to trim the fat that always creeps in during times of plenty. There are three big easy ways to trim the fat: delay unnecessary purchases, reduce employee benefits, and invest in products and services that offer a quick ROI.
Delaying unnecessary purchases
Delaying common purchases like computer upgrades and office furniture can result in substantial savings. While a software developer will often have their productivity hindered on a workstation that is over two years old, most workstations run standard office software more than adequately for four years. Sometimes a redistribution of assets on hand will solve your problem.
Reducing employee benefits
Treating your employees well, paying them fairly, and providing health insurance plans are good business practices. However, extras may have to be eliminated to stay within a budget and keep your business fiscally fit. Society memberships, (unless membership is required by your company or their profession), commuter subsidies, and filled to the brim break rooms may have to be eliminated for the time being. When times return to normal, and funds are available for perks, reward your employees accordingly. Most employers fail to understand employees want the business to succeed and are willing to make modest sacrifices in the short-run to avoid larger problems down-the-road.
Invest in products and services that offer quick ROI
Our economy is vibrant and competitive. Entrepreneurs adapt to economic conditions very rapidly. So seek out purchases that look to offer continuous and fairly rapid savings. Evaluate solutions based on TCO not just purchase price - e.g. An average desktop workstation often costs more to power over the three years you'll use it than it costs to buy it. Spending a touch more for a lower-energy consuming model can pay-off.
Secret #4. Get Rid of the Supply Closet, or Start Managing Inventory
As a business grows, "pockets" of excess non-essential goods begin to build. An office supply closet per location emerges, an IT equipment depot forms with spare parts a-plenty, and other physical goods begin to fill the nooks and crannies of your once-lean business.
An easy way to cut costs and enhance efficiency is to draw down and eliminate these "holding pens of spending". Even if you're not a manufacturer, you may be surprised at the "inventory" you're carrying.
An insurance company was once told that they "carried more inventory than a furniture store" due to all of the pre-printed papers forms they had at each of their small, geographically dispersed offices.
If you do find categories of goods that make sense to have in excess quantities, start managing them formally through inventory management. Track consumption patterns and set re-order alerts.
Staying lean through minimizing inventory-on-hand is one of the best-kept secrets out there when it comes to saving money and recession proofing a business. Inventory costs money. There's overhead on the space that is needed to store it, and it uses up cash that could be used to pay salaries or buy other products and services.
Secret #5. Negotiate Supplier Concessions
If your business is already following our first secret - monitoring spending - then negotiating supplier concessions might be your biggest win. A business that tracks how much it spends on a given product, or set of similar products, which can be obtained from the same supplier, can often negotiate big discounts.
This is a big topic, and one that many professional procurement personnel spend their careers mastering.
The basic premise is that by consolidating your spending on like goods and services and channeling to one or two suppliers, you can increase your leverage and get pricing concessions in return.
Usually, you can achieve greater discounts without making big bulk purchases all-at-once, as long as it is willing to commit to a certain volume over a given time period. Whether they'll admit it or not, many suppliers are quite happy to offer discounts across the board for a repeat business guarantee - especially if times are tough.
Start where your spending is the highest, whether on marketing and advertising, IT equipment, travel, or facilities maintenance. Formalize the process with suppliers and make sure they know what's in it for them. Many firms use a formal RFQ (Request for Quotation) process, and some advanced firms perform a "reverse auction." In both cases, supplier participation is key to achieving pricing discounts. Enlist a consultant to help if your category-specific spending is high enough to justify the cost.
We trust you are finding a number of good ideas, and remind you to tune in next week for the last of our series on creating strategies to recession-proof your business.
Have a Great Week!
Jerry
