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An Intelligent Look at Reducing Spend

3.20.13 - This month Wes Pennington of Frazier & Deeter’s Business Valuations Group continues his blog series regarding working with private equity investors.

A famous entrepreneur was rumored to be so thrifty that he recycled holiday cards by lining out the original sender and simply adding his name!  That may be taking cost savings a bit too far, but in today’s marketplace operating in a cost-efficient manner is imperative, especially for a company seeking any outside investors.

Private equity groups (“PEGs”) favor companies that maintain a firm grip on their expenditure cycle, often termed “spend.”  It follows that reduced spend = higher EBITDA, and thus higher corporate value.   Whether you plan an exit via a PEG sale, or just want to have better control over spending, this article will examine corporate spending habits that may save you cash, without subjecting you to anecdotal humor. 

First, analyze your spend.  Have your accountant prepare a spreadsheet of cash spend for the last couple of years and sort it three ways: dollars, dates, and vendors.  The results will likely surprise. 

Once analyzed, there are essentially two steps:  determining which expenses can be realistically changed, and developing your strategy for change.  Following are typical results found in our consulting engagements:

Large spends with recurring vendors create possibilities for volume discounts.  Frequent opportunities for negotiation include hotels, office supplies, telecommunications, overnight delivery, and automobiles.

Take advantage of vendor discounts.  While not as prevalent as in the past, early pay discounts (“2/10,” for example) represent real cash savings.

Negotiate insurance and evaluate deductibles.  Smaller businesses may have more room than they think to negotiate.  Take a close look at deductibles, and weigh the benefits of premium saved vs. possible losses.

BYOD (“bring your own device”).   Tech spend difficult to control?  Many companies are moving toward employee-owned equipment (phones, tablets), with a purchase allowance.  Employees tend to take better care of personal equipment, minimizing replacement costs, and tend to select equipment (for example, a tablet vs. laptop) which better suits their needs, increasing productivity. 

Phones…. In the world of mobile phones and mobile employees, re-think the need for everyone to have a land line and land-based telecom equipment.

…And telecomm provider. Consider voice-over-internet service as an alternative to a local/long-distance carrier.

Postage.   How is your postage spend?  If you send hundreds of invoices each month, consider email instead.  What additional opportunities exist for email?  In addition to invoices, you may be able to readily email customer statements, product materials, employee communications, such as new product announcements, newsletters, and many more paper documents historically mailed. If you have multiple offices shipping documents to a headquarters (such as expense reports) moving to scanned documents can be a savings.

Web-based meetings.  Web-based meetings have some learning curve, and success is often dependent upon the quality of the connections, but they can provide a considerable savings of both time and money compared to travel.

Depending on the nature of your business, there may be significant opportunities for cost savings by considering your long-standing processes or payment structures and asking which could be more efficient, more electronic or renegotiated.

Your individual experiences, comments, and questions are always welcome.  Please email Wes Pennington at wes.pennington@frazierdeeter.com.

 

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