Sarah, a business coaching client, was going through a cash flow crunch in her consulting practice. She had just signed 6 large contracts, either as the prime contractor, or as a subcontractor participating in a “team” proposal.
She should have been thrilled, after all these multiyear contracts were for several million dollars of business. But the problem was, they could be delayed up to 6 to 12 months before she could have her staff doing billable work on the contracts, and in the meantime, she needed to tighten her company’s spending to ride through the short-term cash crunch.
If you’ve ever felt the pinch of too much time and not enough cash in your account then you’ll appreciate these 15 tips to reduce your expenses and increase your bottom line profit.
1.“Go out to bid” — regularly and systematically. When was the last time you made your vendors compete to re-win your business? If it’s been over a year, I strongly recommend you consider pricing things out. At the very least you’re likely to get a significant price break from your existing vendors when they feel the hot breath of their competitors on the back of their neck.
2. Negotiate with all vendors–train your team to ask for and get a discount.
3. Ask yourself “If I eliminated this cost would we feel any significant impact or loss?” If the answer is no, go ahead and cut the expense.
4. Put every NON-Strategic expense on trial–and presume it is guilty. In other words, put the burden of proof is on the item to justify why it should be spent. No justification? Dump the expense.
5. Start with the most painless place of all to cut–SUPPLIERS. Step back and take a fresh look at your suppliers. Can you aggregate purchasing and get better pricing? Have your orders increased? If so, can they give you better pricing? Have you proven that you’re a sure and speedy payor? If so, ask for and get a discount.
6. Notify your suppliers that any price increase will automatically trigger you to go out for competitive bids. This is your tactic to pre-empt any price increase they may institute (especially if they’ve read other articles I’ve written here.)
7. Send a letter to all your vendors and suppliers notifying them that because times are so tough that for the next 12-18-24 months you won’t accept any price increases… Same goal as the above tip, you’re working to pre-empt any price increase. While your letter shouldn’t have any impact on them, it likely will. Never underestimate the power of the written word, and the fear of loss a properly drafted letter can trigger.
8. Send a letter to all your vendors and suppliers notifying them that because times are so tough that you are forced to announce an across the board price reduction of 3-7% on what you’re buying from them. This is a more extreme version of the tip above. At the very least, I’m betting that your vendors will hold off on increasing any of your pricing.
9. Always “tag team” any negotiation–you need a dispassionate check and a bad cop who is your higher authority. Let that person be your “higher authority” who gives you a better negotiating context. Generally, it’s best if that person is never present during any of your actual negotiations.
10. Get you and your staff trained in how to negotiate–the ROI is huge. Take that workshop; get that video training course for your staff and you to go through bit by bit at your weekly staff meetings. For example, a year ago we hosted a 2-day event on negotiation. One of our business coaching clients brought Daniel, his operations manager to the event. Two months later I asked that client about the impact of the ideas. It turns out that between the owner and Daniel, they had negotiated a savings of $120,000 which dropped straight to their operating profit. Negotiation skills are that powerful.
11. Examine closely your “accepted” way of doing things and see where you can save. For example, do you really need to send things overnight just because the pick up from your office is easier than dropping them off at the post office? Could you ship “media mail” versus priority mail? Could your staff double up on hotel rooms when traveling for business? Etc.
12. Ask for an early pay discount (or additional product or upgraded service) with vendors and suppliers you regularly do business with.
13. Ask if a vendor takes AMEX, offer to pay by check or ACH transfer, and get an instant 3% off. (After all, that’s what their merchant account will charge them.)
14. Pay by credit card and get your cash back, free travel, or other free stuff. Those miles and points can add up. For example, we host our annual “Wealth Summit” retreat for our top business owner clients in Maui, often spending $200,000 on the resort there. Why shouldn’t you get 200,000 points for money that you would have spent anyway?
15. PRE-EMPT “project scope creep”. This one costs companies much of their profit margin. Be careful to document the deliverables of your service promises. If your clients often expect more add on services, put a price on these add on services up front, and go over them in detail with them. Generally this will go a long way to keeping your client for asking for them, but if they do, you smile and say you’d be thrilled to expand the project per their request. Remind them of the added investment which you went over at the start of the engagement, and document the additional cost in a confirming letter or email. The time to talk about these things is at the start, not after you’ve done the additional work.
For more ideas on growing your business, including a free tool kit with 21 in-depth video trainings to help you scale your business and get your life back, click here.