How to Slash Your Small Business Operating Expenses

You know better than the pundits can tell you how challenging it is to run a small business in the best of times, let alone in the worst of times. Wearing multiple hats, squeezing pennies and putting out fires is part of the daily routine.

Meanwhile, the credit crunch remains en force. Indeed, the quest for small business owners to find the capital they need to expand and hire in a recovering economy continue to make headlines. But some experts are saying that a little cost cutting can go a long way toward loosening up some capital to help your small business survive and thrive.

Terry McElfresh, COO of Alliance Cost Containment, a cost reduction and financial analysis firm, recommends that small business owners take five steps to tackling their annual operations budgets to maximize savings. Let’s go through each of them.

1. Challenge your vendors to produce year-over-year cost savings.

Operational needs fluctuate naturally, and many contracts maximize value during the first year alone and do not produce year-over-year cost savings. Three years is the general time frame for when it's best to begin reexamining contracts. When it's time for your next renegotiation, challenge your vendors to produce contracts that demonstrate year-over-year fiscal incentives to maximize the value of your relationship.

"Small business owners often think they have a great deal with their current vendors," McElfresh says. "And while rates are locked in with suppliers on the basis of initial value, many small business owners don't realize that after a few years or even months, it's often not a good deal anymore."

2. Closely audit any recovery inaccuracies in your contractual agreements.

Some companies turn a serious profit on vendor contract abuse, and it's often in the most seemingly innocuous areas within a contract. In a nutshell: monitor your billing statements like a hawk.

"In very large percent of legal agreements, there are inaccuracies with billings and price changes with any vendor," McElfresh says. "It takes time and often expertise to compare and contrast statements line-by-line with contractually-outlined rates and services."

3. Turn your accounts payables in to a miniature profit center for your business.

There's money to be made from smart handling of your accounts payables with certain vendors. Discuss potential incentives with your vendors, like early payment which may yield savings each billing cycle along with fees collected with a merchant card.  "What a lot of people don't realize is that there are services out there that not only expedite the auto-billing process, but can also secure additional savings for simply paying invoicing with a merchant card," McElfresh says.

4. Review your non-medical insurance policies and ensure that you're getting the best rate.

From workers' compensation to property and casualty to liability, small business owners pay a fortune in insuring their businesses from hazardous situations. But it's important to remember that insurance providers are also trying to turn a profit and won't offer you the best possible rate for your needs without prompting. "The non-medical insurance industry still works at 40 to 60 percent gross margin, and on average, there's a 15 to 20 percent overpayment by subscribers," while staying with the same coverage as well as broker, McElfresh says.

5. Hire a professional third-party cost reduction firm.

Many small business owners are aware of the measures that can be taken to ensure operational cost savings, but simply lack the time and resources to commit to steady self-monitoring, analysis, and renegotiating. "Hiring a third-party cost reduction firm often solves these issues while paying dividends over time," McElfresh says.


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