How does your small business purchasing policy measure up? Whether you’re making capital expenditures or buying supplies and materials are you planning those purchases as well as you could?
When it comes to running a business efficiently, purchasing is often neglected, particularly in small businesses where purchasing tasks are decentralized or handled by several key employees. As a result, you may find that you are spending too much money on inferior products or with suppliers who are a little short on customer service.
Streamline Business Purchases
So, what measures can you take to reign in spending and put controls around the purchasing process? Here are 10 tips to consider:
Separate Personal and Business Banking
When making business purchases, first open a business bank account and apply for a business credit card. Here’s why:
a. If you start intermingling personal and business credit, you negate any protection that being an Limited Liability Company (LLC) can afford. A business credit card, used solely for business purchases and expenses, can eliminate this risk as long as it isn’t backed by a personal guarantee.
b. The IRS requires that income and tax deductions for business and personal transactions are kept separate. A business bank account can help with this, while a business credit card can make for easier record keeping because they break down expenses by category.
c. Credit cards are also an effective tool for building business credit.
Create a Formal Purchasing Policy
Now, you may not have a need or even the budget to staff up a procurement team, but it’s a good idea to lay the foundations of a formal purchasing policy – one that defines your desired quality standards, volumes, and price points.
Think about the following factors as you define yours: a. Who has authority to purchase? What can they buy and are there any spending limitations? b. What criteria do you use to select vendors – quality, shipping times/costs, etc.? c. How many quotes do you solicit before selecting a supplier? d. Do you enter into formal supplier contract arrangements? What are the acceptable terms? e. Do you have a process for quality control? f. Do you regularly evaluate supplier performance? If you don’t it’s a good idea to do so.
Appoint a Go-To Purchasing Employee
As a business owner you can only wear so many hats. So, consider passing procurement reins to someone else on your team who can take on this function in addition to other duties. In this role they will not only place orders, but ensure your purchasing policies are adhered to, be responsible for vendor selection and management, inventory, quality control, and payment processing.
Tackle Inventory Management
Inventory tracking is an essential tool for streamlining procurement, avoiding unnecessary waste, and ensuring you are prepared for your busy seasons. There are many integrated online ordering systems that can help you monitor and manage inventory, sales and shipping lines – automating as much as possible can give you visibility into your business, improve cash flow management, help with inventory control, and ultimately, enhance profitability.
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