24 Jan 4 Ways Small Business Owners Can Save Money: Part 2 – Cost of Goods Sold
Last week we started a four part series on saving money as a small business owner. Who doesn’t want to do that? [Read Part One Here!] Well if you read our blog much at all, you have probably guessed that under all of the tips and advice we will give you in this series is a foundational truth:
If you want better numbers — increased savings, higher profit margins, less waste — you MUST know your numbers to begin with.
Knowing where you stand now and whether or not your numbers indicate that you are on trend for your market or not will be absolutely key to finding the leaks in your system as well as bolstering the most profitable areas.
You are here, running a business, so I know you are a hard worker. But when it comes to cutting costs, you can’t just wake up one morning and work harder with no direction! You need to clearly read the story your numbers are telling you so that you can be purposeful about writing your next steps that will lead you to the outcome YOU have in mind.
In other words, in order to run your business instead of letting it run you, it all starts with the numbers!
Cost of Goods Sold (COGS):
Depending on your industry, this can be your biggest expense each month, especially if you are in some sort of retail or the restaurant business. These costs can just seem part of the deal and you may find yourself often — between labor and COGS — trying to balance the invoices and costs throughout the month just to barely squeeze by with the cash in your accounts.
So let’s get down to the nitty gritty. You want to tighten things up but maybe you don’t know where to start. Here are some key areas you need to review pertaining to your cost of goods sold, or the costs that it takes you to produce your sellable product or service.
Analyze and Manage, Manage, Manage
- First, do some research and get to know your industry standards. Their is a WEALTH of shared knowledge available with a little bit of diligent internet-perusing. Are you on target for your industry expense standards? Pinpoint exactly what needs to be cut altogether and what needs to be cut back. Attack over-spending with focus!
- Second, if your expenses are on target and you’re still tight, you need to look at the sales side. What are your best sellers versus your lowest sellers? Think through your best days and times. Is there a way you can restructure your menu or weekly schedule to take advantage of your strengths and boost sales?
- Be willing to ask yourself the hard questions. Are your favorite products making you the money you need? Should you raise your prices to keep your profit margin where it needs to be? Or do you need to consider different vendors in order to obtain cheaper goods? Should you offer less options or a slimmer menu in order to maintain quality and lower your inventory needs?
Get Friendly with Your Vendors
- Many vendors offer rebate programs or rewards to their top purchasing customer. Make sure you are looking into all options on this end! Talk to them and request these benefits even if they aren’t advertised in exchange for your loyalty. Be bold and don’t let potential dollars slip through the cracks here.
- Take the time to research. Investing time into this area to secure long-term deals will be a major time and money saver in the grand scheme of your business. Don’t jump into relationships too quickly. Talk to several vendors and feel out who will be more willing to offer the best deal or biggest perks. Let them know that you are shopping!
Waste Not, Want Not
- Don’t take waste as just “par for the course”. You wouldn’t throw dollars away, don’t throw product away! This (as usual…) goes back to knowing your numbers and taking the time to build a system. If you know what sells when, you can be more responsible in your purchases on the front end.
- Equally as important is having a system for the ways you handle your products and goods. Don’t allow your staff to be frivolous or ruin valuable product due to lack of good systems and clear expectations being set in place.
With each of these areas, you need to be willing to step back and think through your business as the pliable entity that it is. If you see it as static and continue to try to solve your cash flow issue without ever being willing to change or adapt different aspects of your business, you will stifle it and prevent growth. Be willing to prune, graft and nurture in order to see your business flourish!
What that translates into for you is taking the time to invest into knowing where you stand, knowing where you should AND want to stand and then taking the right actions to get you there — but only after you have informed yourself! Any business can create systems and cut costs at random in desperation but with a little effort you can propel yourself into purposeful efficiency and profit-growth!