Streetwise Advice: Cut Costs with Creative Purchasing

1. Proportionate Effort

A slight variation in the overall costs of running your business can have a huge effect on profitability. But you and your key managers cannot spend all of your time dealing with all purchasing-related issues. So focus on purchases that are crucial. Expensive repeat items are the types of merchandise or services that demand your extra attention.

You should watch your costs carefully in key areas. Search out alternative sources. Work closely with vendors, and continually seek innovative solutions.

For less expensive items, such as office supplies or onetime purchases, buy frugally, but don’t involve yourself or key personnel in the process.

2. Bid Everything

Even for relatively small purchases—excluding buys such as a dozen pencils—get multiple quotes. Get your quotes in writing, purchase by issuing purchase orders, and hold vendors to their quotes and the purchase order when you are invoiced. For items over $300 I would get two quotes. For items over $2,000, get at least three quotes.

3. Clear Authority

Clearly delineate who may buy what and how much he or she can spend. If someone in your business acts and looks like he or she has the authority to make a purchase, the business will be held responsible for those purchases. Assign authority for specific categories of goods to specific people, and set spending limits on these authorities. If their intended purchases exceed their limits, assign sign-off authority to a superior. Requiring the use of purchase orders will make your employees think twice as to who has the authority to make a purchase.

4. By Budget

Make sure that whoever is making purchasing decisions is working from a budget and understands the impact his or her purchase will have on the budget—and your company’s profitability! Remember, owner-operators tend to be the biggest culprits when it comes to forgetting about budgets. Curb that tendency to get excited about new, discretionary purchases.

About Bob Adams

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.