Having expenses that are at the maximum of value for money is how business efficiency is described. This means that you do not spend more than you have to get the same product or service.
It also means you have to shop around for basic necessities. Why buy paper from a well-known stationery supplier and pay for delivery on top of the cost when you can get an independent supplier to offer the same paper at a better price with lower or no delivery fee?
Because we always have.
When looking at business expenses and efficiency, we often hear “we do it because we have always done it that way. This is a classic example of not running at an optimal level.
At the start of a new business, a close friend or family member may give you a great deal. As you now know, this is not a great idea.
I am not saying that you should cancel all services with your suppliers but rather look at what else is available. There may be better options available.
There is a joke that accountants have that describes this.
Q: Why did the chicken cross the road?
A: Because that is what was done last year
The result of business efficiency
You may be thinking that we are talking about changes that are too small. These little bits and pieces that will not add up to much in the end. This may be true. You are in business for the “long haul” and these small amounts will add up to something substantial in the future. Let’s give you a few examples:
Car fuel efficiency:
The picture at the top of this post is of a small car using 5 litres per 100km. This means the car travels 20km per litre of petrol. This a good number. Yes, it is a small car. This car does 1000km per month. This adds up to 50 litres of petrol. The price is R16 per litre (example figure not exact). The total bill is R800.
A slightly bigger car or older car gets 6.5 litres per 100km. This is 15.38km per litre. Given the same distance monthly, the bill is now R1 060.31 (using 65 litres).
This is a difference of R 260.31 which adds up to a saving of R 3 123.72 per annum. The company you have has 6 cars. The savings now become large over the year. This could be 1 or 2 employees salaries.
In your personal car usage, that is R 3 123.72 less salary you have to take or have “spare”.
Outsourced functions:
Companies are quickly learning that outsourcing certain functions are a great way to save.
A good example is the accounting function. Your accountant or bookkeeper is on a salary of R6 000 per month. That is R 72 000 per annum which excludes leave pay. To outsource the same function can cost as little as R4 000 per month. That is a saving of R24 000 per year. That is four months of their salary!
Find out more about outsourcing your accounting functions and your payroll functions.
A bigger example:
You produce 100 000 shirts per month at 25 cents per shirt cost. Reduce that to 23 cents per shirt and you save R 2 000.
These are two small examples but the principle is true to bigger parts of your business.
Being efficient in your business can make a big difference in the long run.