Keeping the wheels of your business turning can be expensive. As part of your ongoing business cycle, you’ll need to buy the goods and services that keep you operational. This might be subscriptions to business software, raw materials for production or even accounting services.
But if you’re going to get the maximum value from this procurement process, it’s important to be fully in control of what you’re buying and how you manage these costs.
There’s no escaping the fact that cash flow is tight for many businesses at present. Globally, we’re experiencing a worldwide economic slowdown, alongside the pressures of a supply chain crisis that has pushed up prices and reduced margins.
Because of this, it’s important for you to keep a close eye on your procurement, so you can find the best prices, strike the best deals and keep your business in a positive cash flow position
If you’re using the most expensive logistics partner, or spending too much on raw materials, this can start to have a big impact on your profitability and your ability to grow.
Keeping your business in a positive cash flow position is all about ensuring your cash inflows (your income) outweigh your cash outflows (your costs).
When your procurement costs are high, it makes it a real challenge to maintain this positive cash position. The answer is to examine your spending and to proactively reduce your costs, improve your supplier terms and generate a tighter and more effective procurement process. If your procurement process helps you cut down on your spending, you’ll also improve the overall financial health of the whole business.
If you buy goods into the business, it’s important to think about your basic cost per unit. Your unit cost is difficult to control, but there are ways to reduce it. Try getting multiple quotes from a variety of suppliers so you can source a provider that offers the best mix of value, quality, and reliability, at an economical price. Negotiation can also be an effective way to bring prices down.
Physical goods have to be transported to your premises and to your end customers. These logistics costs are integral operational expenses, but they can still be reduced as part of the procurement process. Search for carriers and logistics providers that offer the services you need and then see if they are open to negotiation on prices. Ask if discounts are offered if you offer shorter payment terms or if you join a preferred customer program to help reduce prices.
Nurturing good relationships with your suppliers sets the best possible foundations for your procurement management. Building that stability into your supply chain deepens trust and makes it easier to negotiate favorable terms. Put some effort into nurturing good relationships with your supplier and make sure you always pay on time. This helps to build a good reputation with your supplier, making your procurement process simpler and more cost-effective.
Whether you’re selling nationally or across borders, there are likely to be territory-specific taxes and duties to pay when buying and transporting your goods. Working with a tax adviser who knows your industry and/or territories helps a great deal. They can check you’re paying the right taxes on your goods/services and that they’re correctly categorized for taxes like VAT or GST. Working with a customs broker also ensures you pay the correct duty on all your imports and exports.
Business software is transforming the efficiency of procurement. There are plenty of cloud-based procurement solutions available, giving you the benefits of 24/7 accessibility in the cloud and one point of truth for all your procurement data and reporting. This helps to streamline your internal processes, manage risk more effectively and keep a close watch on spending against budgets, cash flow, and expected expenditure. By keeping yourself informed, you can manage your expenses by putting caps on spending or switching to new suppliers that can offer you a better deal or cheaper prices.
Taking the time to improve your procurement management is a no-brainer in the current climate. You’ll improve your cash flow, supplier relationships, and your ability to ride out the slowdown.
Ready to improve your procurement process and boost your business’s financial health? Contact Hart Partners today and let us help you take control.