Reducing costs and increasing cash flow are top priorities essential to beating the competition. Yet few entrepreneurs pay the same attention to these two key components as they do to increasing sales. When they do, they stand out. It’s how Sam Walton’s Walmart beat K-Mart, Target, Sears, and throngs of local and regional stores to become the world’s dominant retailer. (In fact, don’t miss number 22 below to see what market dominance can buy you.) If you buy right, you can sell right. If you don’t buy right, you can’t sell right. If you are going to thrive in any business, minimizing costs and maximizing cash flow must be at the top of your priorities.

Immediately upon the acquisition of a new company and at least annually for any business you operate, the following process is a must.

Put the highest priority on those items below that appear most significant to your particular business.

Assign them one-at-a-time to an appropriate employee but monitor their progress yourself.

  1. Collections: Reduce accounts receivable through aggressive collection efforts on past due accounts, review and reset lower maximums for historically delinquent accounts.
  2. Sales: Reexamine each product’s volume and margins, cut products or services that don’t pay their way.
  3. Advertising: Retest and reexamine advertising results, switch to pay for results options, increase ads that get stellar results.
  4. Inventory Shrinkage: If security is an issue, install camera/recorder system etc., Tighten chain of control  and access procedures.
  5. Purchasing: Review current sources, re-shop and re-bid; consolidate purchasing and approval process, end any practice of unauthorized purchases, institute use of numbered POs, rent rather than purchase or lease infrequently used equipment, purchase or lease rather then rent frequently used equipment. Purchasing areas to review:
    1. Communications
      1. Local and Long Distance Phone Service
      2. Cable Service Providers
      3. Internet Service Providers
      4. Cell Phone Service Providers
      5. Consultants
    1. Information Technology
      1. Hardware Providers
      2. Software Providers
      3. Peripherals & Accessories Providers
      4. System Providers
      5. Consultants
    1. Raw Materials
    2. Plant Machinery & Equipment
    3. Furniture & Fixtures
    4. Construction (Leasehold Improvements)
    5. Signage
    6. Advertising
    7. Travel & Entertainment
    8. Transportation
    9. Common Carrier Services (establish protocols for determining method used)
      1. Messengers (when and for what is it really necessary)
      2. Overnight (when and for what is it really necessary)
      3. Second Day or Priority Mail
      4. First Class Mail
      5. Freight
      6. Freight Consolidators
      7. Armored Couriers
    1. Insurance
    2. Healthcare Providers
    3. Professional Services
      1. Legal
      2. Accounting
      3. Bookkeeping
      4. Payroll
      5. Other industry specific services
    1. Other Services
    2. Janitorial
    3. Gardner
    4. Coffee
    5. Water
  1. Shipping: Review shipping categories to make sure products are shipped under the lowest cost category you can qualify for. Hiring a freight consultant to review your product and shipping methods can create huge savings.
  2. Management: control of access to phone, internet, office & shop supplies, mailing materials and postage. Monitoring of phone calls, internet usage, inbound and outbound mail, expense accounts, and even petty cash.
  3. Banking:
    1. Shorten duration from receipt of funds to deposit of funds, to credit to account.
    2. Pay with drafts from an out-of-state independent bank instead of checks from a local major bank.
    3. Loan excess and float funds overnight and over weekends to banks for interest income.
  1. Staff: Evaluate staff assignments and consolidate functions.
    1. Reduce staff or cutback hours.
    2. Eliminate overtime
    3. Convert to more temps and less full-time permanent staff
    4. Outsource specialized, cyclical or sporadic functions
    5. Install 5-6 foot partitions between coworkers in a common area.
    6. Use consultants instead of full-time executives for infrequently required expertise.
  1. Maintenance: Lengthen or defer maintenance cycles but not too long.
  2. Outsourcing: Find sources, foreign and domestic, that do a function or produce a component more cost effectively.
  3. Leasing v. Owning: Leasing can usually be done with less cash out of pocket then borrowing and purchasing.
  4. Accounting: Review tax returns for past 3 years for errors resulting in overpayments or unclaimed loss carry-backs or forwards and file for refunds.
  5. Borrowing: Review lending sources for lower interest rates and/or longer payment terms
    1. Refinance when appropriate.
    2. As you qualify for better credit arrangements, try moving your uses of credit up the following list for lower costs. Keep moving towards the top.
      1. Direct to Public (marketed through an underwriting investment banker)
        1. Bonds
        2. Debentures
      1. Insurance Companies
        1. Real Estate Loans
        2. Loans Secured by Assets
      1. Pension Funds
        1. Real Estate Loans
        2. Acquisition Loans
        3. Loans Secured by Assets
      1. Credit Unions
        1. Real Estate Loans
        2. Loans Secured by Assets
      1. Thrift & Loans
        1. Real Estate Loans
        2. Loans Secured by Assets
      1. Savings & Loans
        1. Real Estate Loans
        2. Loans Secured by Assets
      1. Banks
        1. Unsecured Lines of Credit
        2. Unsecured Term Loans
        3. Term Loans Secured by:
          1. Real Estate
          2. Vehicles
          3. Machinery & Equipment
        1. Evergreen Loans Secured by:
          1. Accounts Receivable
      1. Finance Companies (Asset-Based Lenders)
        1. Equipment Loans
        2. Accounts Receivable Loans
        3. Purchase Order Financing
        4. Real Estate Loans
        5. Inventory Financing
      1. Factors
        1. Customer Invoices
      1. Credit Cards (carrying monthly balances)
      2. Private Lenders
      3. Loan Sharks
  1. Facilities: Sublease unused office, warehouse or production space. Even surplus parking lot spaced can be subleased to car dealerships for new and used car storage or RV or boat storage.
  2. Energy Conservation: Replace incandescent lights with fluorescents. In winter, turn down thermostats to 68 degrees or lower and supply space heater to employees who need more warmth. In summer, set air conditioning thermostats to 78 degrees or higher and supply fans to circulate air. Set computer screens to turn off when not used.
    1. Appoint someone to head up a conservation team and go to the website URL below for ideas.
    1. Use power management equipment and software to reduce power costs for productions machinery and equipment. Go to the following website URL for ideas.
  1. Sell on eBay (or some other source) unused or obsolete equipment, furniture, fixtures, hardware, software, supplies; over purchases of products or parts.
  2. Reduce inventories through Just-In-Time Inventory Management
  3. Shorten number of steps and duration of time cycle.
    1. Manufacturing: Ordering raw materials to shipment of final product
    2. Wholesale: Ordering product to shipment of product
    3. Retail: Ordering product to sale (and delivery) of product
    4. Service: Promotion to Completion of Service
  1. Simplify forms and paperwork. Eliminate redundant information and entries.
  2. You are paying for every cubic foot space. So use it floor to ceiling. Use racks if necessary.
  3. Layoff onto your suppliers as many cost and cash flow factors as possible. For example, under Walmart’s Business Model, suppliers must:
    1. Charge Walmart 15% to 25% less then any other of their customers for their products
    2. Pay freight to Walmart’s warehouse
    3. Carry accounts receivable for 90 days after product arrives at Walmart’s warehouse
    4. Take back any products not sold in 90 days for full credit
    5. Take back any products returned to Walmart for full credit
    6. Pay freight from Walmart’s warehouse back to them for all returns
    7. Guarantee a minimum sales volume per month per sq. foot of allocated shelf space
    8. Pay a substantial onetime setup fee to get shelf space allocation
    9. Pay a monthly fee to keep allocated shelf space clean, organized & full of salable product
    10. Pay cooperative advertising costs when their products are featured in a Walmart ad

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