At a recent event, we split like businesses up in two groups to discuss their top cost-saving ideas. The open, competition-free atmosphere allowed owners to freely share their best cost-saving ideas with each other.
The volume of cost-saving information was incredible. We can’t begin, in this short article, to do justice to all the ideas, but here is a brief summary of what’s working to save costs:
Bid Out Needs – From insurance to banking to employee benefits, a host of companies saved money this year by using the bid process. Many owners mentioned conducting a careful evaluation of their true needs before going to bid. Two owners employed outside risk managers to assess needs and prepare a Request for Proposal. One owner reported saving $140,000 using this process. The minimum savings reported using the bid process on liability insurance was $20,000 per year. Another owner achieved a 50% workman’s comp rate reduction through a drug and safety program.
Use Sweep Accounts – Cash sweep accounts are tools we’ve been preaching for years. Owners reported savings of $25,000 to $120,000 per year just by using idle cash to pay down bank lines or invest overnight for interest earnings.
Trim Personnel Costs – Many owners found by adding personnel and reducing overtime, they achieved significant savings. Others found that hiring new outside sales persons paid big dividends. A few flattened their organization by firing ineffective middle level management. One company was able to reduce store personnel through an efficiency study to the tune of $450,000 in annual savings! Another owner decided to make better use of off-season drivers by using them for maintenance at a savings of $25,000.
Save on Equipment – The common cost-saving theme was to replace outdated, expensive equipment. Owners also achieved savings by canceling never-used maintenance contracts, getting into leasing programs, and instituting loaned equipment policies. There were some very creative truck/tank configurations designed to meet specific market needs that translated to considerable savings. Still others reduced truck expenses by making more extensive use of common carriers.
Accounts Receivable/Customer Credit – Businesses that sell on credit are getting savvy. From shortening credit terms, to hiring extra credit personnel, to tightening credit standards, owners are reaping the reward of better cash flow through better receivables management. One owner reported a $60,000 annual interest savings on a working capital line simply by changing customer terms. Others worked on their internal systems. Two owners reported outstanding results by converting to EFT collection. One concentrated on improving their bills – making them easier to understand and therefore easier to pay!
Cut Operations Expense – Small business owners scrutinized their own internal systems for inefficiencies. One went to a generic multi-purpose form that saved the company $20,000 in supplies cost. Another found that locking the office supply cabinet did wonders. And yet another saved $30,000 per year by streamlining paperwork processing.
Reduce the Cost of Banking – Business owners are negotiating everything! From checking account fees to interest rates, family businesses gained considerable savings by not accepting the status quo.
Evaluate Profitability – Family businesses took a look at their profits, customer-by-customer and site-by-site. Some sold marginally profitable stores. Another owner found after closing two stores that his annual savings were over $80,000 when he thought that they were at a breakeven!
Telephone Savings – Sometimes it takes more than good rates and contracts. One savvy business owner made individual employees accountable for their own phone expenses! Another simply canceled the cell phones. Shop around for the best rates and consider combining internet, landline and cell phone service to one provider if there’s a discount.
Better Supplier Management – Many businesses used a variety of methods to lower supply costs. At the front end, many negotiated supply contracts and switched to lower-cost providers. Some are more closely scrutinizing all bills. It’s amazing what comes through the mail or email as an invoice that wasn’t ordered and shouldn’t be paid. On bills with hourly labor charges, owners and managers are verifying time worked.
Outside Services – There is no “one rule fits all” when it comes to outside services. Some owners reported savings when they got rid of outside providers and brought functions inhouse. Others found savings by contracting with outside providers such as the risk managers mentioned. One owner found significant savings by putting outside professionals on retainer. Another company leased their employees from an outside agency capturing $120,000 in savings the first year alone.
Throughout the success stories, one common theme was evident. Cost reduction must be a focus for all employees. These family business owners found tremendous success simply by talking about cost-saving ideas at every staff meeting and using an employee suggestion system.
Finally, many family businesses are committed to using budgets. The word “budget” may conjure up a negative response from those with corporate backgrounds. What we’re talking about here, however, is not fixed-in-stone budgets. We are talking about moving, achievable targets that allow savvy owners to monitor their degree of success. Those who use budgets are paying close attention to their forecast versus actual results. They actively seek ways to do the same or more business in the coming years at less cost.
Let’s face it, shrinking margins together with customer expectations for great price and service means family businesses must get efficient to survive!
