It is a natural human tendency to spend everything allotted to us in a budget. Many small business owners are wising up to the fact that conserving on spending is a large contribution to the company’s ability to stay afloat and prosper during tougher economic times. Apply the same strategies when the economy is flourishing and a small business is sure to prosper.
1. The first rule of thumb is to never “rob Peter to pay Paul.” In other words, be precise about what each department will need for the budgetary period and spend only the money designated for particular items on those items. For example, if your past history shows you will need a certain amount of copy paper, buy only that much paper. You may not use the money designated for cleaning supplies to buy paper. There seems to a universal principle in force that frowns on crossing purposes like this. You will inevitably find yourself running out of supplies everywhere once you set off the first domino in the sequence. If you use more paper than you predicted, the only choice you have to increase your spending allowance is to generate more sales to cover the expense.
2. Don’t look for reasons to spend “left over” money. You may end up using less paper than you expected and have an excess balance in that part of the budget. Suddenly something will come up that could quickly eat up that balance, such as a piece of equipment failing or a sale on an item you have been coveting for some time. Don’t spend the money on anything that was not part of the plan for your budget.
3. Pay all your bills first. If you have past debt, pay a percentage to the oldest bill each month until it is paid off. Then work on the next oldest debt until they are all resolved. Pay all your current bills on time to avoid late charges. Build up a cushion of 2 or 3 months worth of payments for bills so you never get behind.
4. Call all of your vendors and find out if there are ways you can cut costs. There may be a better way to purchase in volume, for example to get a greater discount. Your cell phone company may have a new plan that cuts down your cost.
5. Any time you purchase equipment, spend the money on an item that has multiple uses. For example, if you need a new copy machine, get one that connects to a computer for printing, as well as being able to scan and fax. This saves you from spending money on a piece of equipment for each function.
6. Compare the cost of having certain parts of a project outsourced rather than done “in house.” You may find one way or the other saves money.
7. Reward your employees for not overspending and for discovering new ways to cut costs. Profit sharing is one of the best ways to increase productivity and reduce spending. Encourage them to come up with creative ways to generate additional funds when they want to make an unplanned purchase.