Do-It-Yourself Growth Capital

In today's tight financing markets, with many owners relying on cash flow to fund expansion, cost control could be your key to faster growth.

Tweet

Owner's Manual

If tight financial markets are cramping your company's style, it's probably time to take a hard look at cost control

Some entrepreneurs think that the challenges of starting and rapidly growing a company are simply so great that they can't afford the time to worry about matters like cost control. Other business owners complain that the demands of running a large, successful company leave them no time or energy to focus on how much they're spending.

But Art Allen, who built Allen Systems Group, an enterprise-software company in Naples, Fla., into a $50-million powerhouse in just 13 years, begs to differ. "If you're trying to grow a business and you either don't have access to capital or, like me, don't want to give away any equity in your company, then you need to be focused from day one on how to reduce or hold down costs." For small growing companies, cost control is especially essential in times like these, when tight financing markets (for all but a shortlist of Internet-related and other high-tech companies) require many businesses to rely on cash flow to fund their growth.

In our search for penny-pinching pointers, we contacted a range of chief executive officers, chief financial officers, and financial experts. Our conclusion? Plenty of old standbys still work well, including relying on stock options to try to keep a lid on salary costs, comparison shopping for the lowest-cost insurance plans, and taking advantage of early-payment discounts from suppliers. But thanks to changing marketplace conditions, there are also some new and different cost-control strategies that are simply too effective to overlook.

1. Use the Internet. Granted, it's tough to find a business (or individual) consumer whose shopping patterns haven't been changed by that giant mall out in cyberspace. But Stephen King, the president and CEO of Virtual Growth, a New York City-based accounting firm, recommends a new twist on the Internet theme: use listservs--E-mail lists you can subscribe to that are focused on a specific topic or enthusiasm--to network with other businesspeople who may be able to pass along useful suggestions. By going on-line, you can find out about the best deals while saving yourself time and money.

"The technique is incredibly effective, and it costs a business owner absolutely nothing," King says. "One of my clients needed to set up a merchant-banking account, so I sent out a message describing the company's needs on a Tuesday night. By Wednesday morning, I had 12 great leads." King's favorite listserv for entrepreneurial companies is the business listserv at http://wwwac.org.

2. Take advantage of group-purchasing discounts. Allen looks to his major suppliers, like Xerox, to help his company qualify for discounts on other items, such as shipping costs. But business owners whose orders aren't big enough yet to win that kind of benefit should look for discounts elsewhere, through industry groups.

Young companies that rely heavily on credit cards are finding that card issuers may offer many good purchasing discounts. Marcello Serrato, owner of Prestige Auto Specialists, in Boca Raton, Fla., a 14-year-old company with sales under $1 million, says: "My time is very precious because every minute that I spend on my company can be turned into money. But I don't have the time to spend comparison shopping whenever we need to make a major purchase." Instead, he calls American Express, whose credit card he and the company have used for nearly a decade. "I just upgraded our computer system and bought IBM machines, since AmEx gave me a 10% discount as well as its extra warranty. I also use Federal Express, since our credit card qualifies us for a discount there."

3. Find ways to audit significant operating expenses. Donna McGovern, the owner of Ideal Business Solutions, in Westminster, Calif., which provides part-time CFO and controller services to small businesses, advises her clients to try to cut costs on every single line item. "I tell them that just finding ways to make one or two reductions probably won't add up to enough to make a difference to their company's bottom line," she says.

Here's where a new breed of entrepreneur can help. "If a company spends a fair amount on its shipping costs, I'll recommend that its owner bring in a specialist to audit its freight bill," McGovern says. "Those kinds of companies will both look for errors in your prior bills and make suggestions about new ways that you can cut shipping costs." Among the most popular line-item auditors are telecommunications auditors, utility auditors, and accounts-payable auditors. A big selling point is that most auditing firms charge only contingency fees, so it won't cost your company anything if they don't find ways to save you money.

 1 | 2  NEXT 

Read more:

Sign-up for our Finance Newsletter

Email Address: