| Incurring expenses is usually the focus of many | | | | example, some energy reduction strategies could |
| business owners. Generally because it's the easiest | | | | include turning off lights in offices that are not being |
| and most visible thing to look at. However, there are | | | | used, or turning off the air condi8tioning system, |
| other considerations for controlling costs. The first | | | | photocopiers, printers and computers at the end of |
| one is to look at how you manage the flow of | | | | the day. Is there the potential to use electricity in |
| money overall. By this I mean your budgets. | | | | "off peak" periods. Put timers on plant and equipment |
| I want to reiterate that if you spend the time | | | | and put signs around your business reminding people |
| upfront defining your budgets, then it's a lot easier to | | | | to turnoff the lights and to save energy. |
| manage the costs that are incurred down the track. | | | | 8) REIGN IN THE STATIONERY BILLS! |
| It also allows you to then delegate the management | | | | One of the biggest expense items in a business can |
| of this process to the bookkeeper or financial | | | | be stationery. A lot of business owners won't pay a |
| controller. | | | | $10 delivery charge to their business, but they will |
| 1) TOP TIP: IMPLEMENT A SYSTEM THAT YOU | | | | send an office person to pick up the stationery, at |
| ONLY PAY ON PURCHASE ORDERS | | | | $25-30 an hour, plus allow them to purchase |
| One of the most effective ways to control costs is | | | | "whatever they need". Have you ever tried not to |
| once you have your budget defined, is to then | | | | buy an impulse item at a stationery store? It's |
| implement a system where you ONLY pay invoices | | | | impossible - take it from someone who knows! Look |
| on purchase orders. This will stop employees ordering | | | | also at the purchases that are being made in small |
| willy nilly in its tracks. Because as soon as you issue | | | | quantities - can money be saved by purchasing in |
| the edict to staff, you make sure that the accounts | | | | bulk - especially in printing. Make sure that one person |
| people ONLY pay where a purchase order is quoted. | | | | only has the responsibility of purchasing stationery |
| For staff to spend money, this means that they | | | | and ordering printing so that its not open slather of |
| have to request a purchase order from the accounts | | | | everyone in the business and they can also make |
| person. They would then check the budget to make | | | | sure that the items are actually required. |
| sure that the amount is allocated, and that the | | | | 9) ESTABLISH A TRAVEL POLICY |
| person ordering the goods is authorized to make the | | | | Do you have a travel policy in your business? If so, it |
| order. If the answer is yes to both of these, then | | | | should clearly outline the class of air travel, grade of |
| the accounts person would issue a purchase order | | | | hotel accommodation and what expenses can be |
| which the person ordering the goods when then | | | | incurred and reimbursed. There are numerous |
| quote. | | | | accommodation site available now days that allow |
| So when the invoice is received by the accounts | | | | last minute bookings at a greatly reduced cost - have |
| person, they would then check that the goods have | | | | a look at to see what I mean. Using this site means |
| been delivered and that there is no outstanding | | | | that you can actually book staff into 5 star |
| issues to resolve. They would then prepare a cheque | | | | accommodation at 3 star prices. |
| or online transaction for payment. | | | | 10) CHECK BANK CHARGES & FEES |
| If there is no purchase order assigned, then they | | | | Also consider bank interest, fees and charges - these |
| would refer it back to the supplier and/or the staff | | | | should be checked regularly as banks often make |
| member who ordered the goods to resolve. I | | | | mistakes in charging fees and interest. You should |
| suggest being tough here - if its not assigned, then | | | | also maintain a record to interest rates and margins |
| you don't pay. It's then up to the employee to settle | | | | quoted by banks and shop around for the best |
| the account - well essentially you probably would, but | | | | interest rates. |
| when there's a perceived consequence, it usually puts | | | | 11) REVIEW VEHICLE ALLOWANCES |
| the fear of god into them! They usually don't spend | | | | Vehicle allowances are also another area of costs |
| your money again after that scare! | | | | that can rack up pretty quickly when employees |
| 2) VALUE FOR MONEY | | | | cotton to the fact that they can receive a nice little |
| One of the areas that most business owners are | | | | earner using the ATO vehicle allowance figures. If |
| usually fairly comfortable with is controlling costs. But | | | | you have people using their vehicles a lot, you may |
| let's just go over the basics again. As a business | | | | want to consider whether you purchase or hire a |
| owner, you should set a key performance indicator | | | | pool car. Often the amount of money that you can |
| for your financial controller to be responsible for value | | | | spend paying vehicle allowances can actually pay off |
| for money. This means continually looking for | | | | a company car - therefore building your assets at the |
| different and innovative ways to control costs as a | | | | same time. Another way to hand this is to offer to |
| way of impacting your business' profitability. A dollar | | | | pay for all petrol costs instead. So everything an |
| saved as a cost, goes directly to bottom line | | | | employee fills up, they just need to hand you the |
| profitability. Some businesses find that by | | | | receipt and they'll be reimbursed in full. This still adds |
| implementing tight cost controls and questioning the | | | | up cheaper than paying a vehicle allowance - and is |
| need for all spending has achieved the same | | | | easier to budget for in your profit and loss |
| profitability improvement that would otherwise have | | | | projections. |
| had to come from a substantial increase in sales. | | | | Another way to further streamline this process can |
| Now I'm about to briefly go through a checklist that | | | | be to have fuel cards that link into a single account |
| is available in the 'Essential Financial Management | | | | that you pay each month. |
| Templates' workbook which you can purchase from | | | | 12) ESTABLISH BOUNDARIES FOR EMPLOYEE |
| our website. | | | | EXPENSE REIMBURSEMENTS |
| 3) SHOP AROUND FOR DEALS | | | | Always establish the boundaries for expense |
| The first rule of thumb is to shop around. No matter | | | | reimbursements in your business. Incorporate this into |
| who I'm dealing with, whether it's a good friend or | | | | your induction program in your business so that |
| colleague that's providing the service, I always | | | | everyone is extremely clear of the expectations. This |
| compare it against two other quotes. Now, I usually | | | | is particularly relevant if you have a business |
| don't go straight for the cheapest option, but it does | | | | development person who wants to have an |
| allow me to then go back to the original person and | | | | "entertaining" budget. I usually empower people in this |
| have an open and honest discussion about reducing | | | | regard by providing them with a profitability target on |
| the original cost. I always think about a comment one | | | | sales made - which incorporates things like their |
| NASA astronaut once made when being asked about | | | | entertainment budget. But more often, I'll act6ually sit |
| his feelings about being in space on a new space | | | | with them and run through ways to provide potential |
| shuttle for the first time. His reply was, "how would | | | | clients with value, without expenses "wining and |
| you feel if you were about to fly in craft millions of | | | | dining" experiences. In fact, in my IT days, where |
| mils into space, where your shuttle safety is | | | | everyone apart from me had a corporate credit card |
| completely reliant on our governments policy of | | | | for "smoozing". I was more effective with my sales |
| sourcing the cheapest part possible." Point well taken. | | | | because I would take people for a coffee. |
| It's not always about going for the cheapest option, | | | | 13) MAKE SURE THE INVOICES YOU PAY ARE |
| but it is about ensuring that you're getting value for | | | | CORRECT |
| money. | | | | Advertising is another area where businesses can |
| 4) COMPARE ACTUAL COSTS TO YOUR | | | | incur lots of charges. I've covered off on advertising |
| BUDGETED COSTS | | | | in another CD in the Jump Start Your Business Series, |
| Another point is to always review costs on an | | | | but one thing I want to mention here is taking care |
| ongoing basis. I would suggest monthly - lets not wait | | | | with "bogus" invoices for advertising and checking |
| until the end of the year or when we're in strife, we | | | | that all invoices are actually for valid advertising. Now |
| should always be focused on ensuring that we're | | | | if you have a purchase order system or a centralized |
| getting value for money at all times. When you are | | | | purchasing process, then you won't get caught out |
| going through your reports with your financial | | | | on this one. But a few years back there was a scam |
| controller, use this as a time to look over your costs | | | | where people were receiving invoices for |
| and compare them to your budgets. | | | | "advertising" and then pressuring the accounts |
| 5) THINK OUTSIDE THE BOX TO CONSIDER OTHER | | | | payable staff to pay them. A nice little earner made |
| OPTIONS | | | | from the lack of internal systems in 99% of |
| Also be sure that you're aware of what's happening | | | | companies. |
| in the market place. Is there a new player who can | | | | 14) BEWARE OF OVERCHARGING! |
| provide competitive prices, or is there an online | | | | I want to finish by talking about overcharging and the |
| option available to you. Perhaps even a global | | | | need to always check invoices against contracts or |
| possibility for you to explore. I'll give you the example | | | | agreements. This includes rental agreements, any |
| of a website. I had a friend who rung me to ask my | | | | supplier invoices, etc. If in doubt, don't be shy of |
| opinion about a quote she had received on building a | | | | asking the supplier to provide more details or query |
| website. The quote was for $10,000. I referred her | | | | any inconsistencies. Errors are easily made and usually |
| to a website called that has a global online bidding | | | | suppliers are extremely apologetic should a |
| community. She placed a project brief for someone | | | | discrepancy be discovered. |
| to build her a website and ended up getting one built | | | | 15) ENSURE THAT YOUR PETTY CASH HAS A |
| for $1400. She was delighted with the quality and the | | | | MONTHLY LIMIT |
| end result - the only thing she did say was that she | | | | Despite your best planning, there will be cases when |
| had to spend more time communicating with them | | | | you need to have access to some petty cash - that |
| (as they were overseas) but she was happy to do | | | | is small amounts of cash for purchases that are fairly |
| that to save herself $8,600! | | | | minor and random. |
| 6) CONTINUALLY REVIEW YOUR STANDARD | | | | Make sure that the initial petty cash amount is |
| PROVIDERS FOR THE BEST PRICES | | | | realistic - if it keeps exceeding the amount each |
| Are there areas in your expense items that are being | | | | month, you need to establish where the cash is being |
| deregulated or additional players coming into the | | | | spent and then put alternative strategies in place. |
| market. For example, electricity or gas providers, | | | | However, I would strongly recommend setting a |
| telephone providers, etc. You may be able to save | | | | monthly limit that staff are aware of - for instance |
| money by consolidating accounts on your mobile | | | | set a monthly amount of $150. Once it's exceeded, |
| phone bills. There are also telco providers that | | | | it's exceeded. |
| actually provide a free assessment service to see | | | | Taking time to reassess your costs will have a direct |
| where they can save costs for you - use them! | | | | impact on your bottom line. However, be careful that |
| 7) REVIEW ELECTRICITY COSTS WITH AN | | | | you don't focus more on cost minimization than |
| ENERGY AUDIT | | | | opportunity creation. It's easy to cut costs, but |
| And while we're on electricity costs, have you | | | | downright difficult to create more income. So be sure |
| conducted an energy audit in your business to ensure | | | | that your attention is focused in the right direction. |
| that you're not needlessly wasting money? For | | | | |