Five Steps for Small Business Owners to Reduce Operating Expenses

LOUISVILLE, Ky., June 30, 2011 /PRNewswire/ -- Running a small business is challenging in even the best economic climate, and in the aftermath of the Great Recession, every dollar counts. While figures indicate that the U.S. economy is on the rebound since the dark days of 2008, small-business employment growth has been weakening in recent months. According to USA Today, small businesses added only 27,000 jobs in May, which is a sharp drop from the more than 100,000 jobs added during December and January. As small businesses scramble to secure additional sources of revenue, that extra capital may be right under your nose: within your current operational expenditures. Terry McElfresh, Chief Operating Officer of Alliance Cost Containment, a leading cost reduction and financial analysis firm, recommends that small business owners take the following five steps when tackling their annual operations budgets to maximize savings.

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1. Challenge your vendors to produce year-over-year cost savings.  

"Small business owners often think they have a great deal with their current vendors," McElfresh said. "And while rates are locked in with suppliers on the basis of initial value, many small business owners don't realize that after a few years or even months, it's often not a good deal anymore."  

Operational needs fluctuate naturally, and many contracts maximize value during the first year alone and do not produce year-over-year cost savings. Three years is the general timeframe for when it's best to begin reexamining contracts, and when it's time for your next renegotiation, challenge your vendors to produce contracts that demonstrate year-over-year fiscal incentives to maximize the value of your relationship.

2. Closely audit any recovery inaccuracies in your contractual agreements

Some companies turn a serious profit on vendor contract abuse, and it's often in the most seemingly innocuous areas within a contract.  

"In very large percent of legal agreements, there are inaccuracies with billings and price changes with any vendor," McElfresh said. "It takes time and often expertise to compare and contrast statements line-by-line with contractually-outlined rates and services." In a nutshell: monitor your billing statements like a hawk.

3. Turn your accounts payables in to a miniature profit center for your business.  

There's money to be made from smart handling of your accounts payables with certain vendors.

"What a lot of people don't realize is that there are services out there that not only expedite the auto-billing process, but can also secure additional savings for simply paying invoicing with a merchant card," McElfresh said. Discuss potential incentives with your vendors, like early payment which may yield savings each billing cycle along with fees collected with a merchant card.  

4. Review your non-medical insurance policies and ensure that you're getting the best rate.

From workers' compensation to property and casualty to liability, small business owners pay a fortune in insuring their businesses from hazardous situations. But it's important to remember that insurance providers are also trying to turn a profit and won't offer you the best possible rate for your needs without prompting.

"The non-medical insurance industry still works at 40 to 60 percent gross margin, and on average, there's a 15 to 20 percent overpayment by subscribers," while staying with the same coverage as well as broker, McElfresh said.

5. Hire a professional third-party cost reduction firm.

Many small business owners are aware of the measures that can be taken to ensure operational cost savings, but simply lack the time and resources to commit to steady self-monitoring, analysis, and renegotiating.

"Hiring a third-party cost reduction firm often solves these issues while paying dividends over time," McElfresh said. If you're concerned about the cost of hiring a team of third-party experts, remember to look for a firm that only profits when you profit – i.e. a firm with a fee contingent on securing the savings that you've hired them to find. Additionally, look for a firm that can leverage their own considerable buying power in your favor by establishing contracts with vendors at significantly better rate than you'd be able to achieve on your own. It's a win-win relationship.

For more information on Alliance Cost Containment or to schedule an interview with Terry McElfresh, please contact Patricia Summers at 212.243.1431 or [email protected]

SOURCE Alliance Cost Containment