04/ 10/ 2006
by Jeffrey Moses
Sometimes it seems that even with the best of intentions to slash expenses, costs mount as if you have little control over them. It’s uncanny how cash seems to have a mind of its own.
The best, and perhaps, only way for a company to actually cut costs (not to mention just staying even) is for the owner to personally authorize every check written for non-salary payments. Salary checks, of course, can be pre-authorized, so the owner doesn't have to spend time going through payroll every week or two.
In a close-knit small business in which employees and owners are almost like family, owners often hesitate to turn down employee requests for new equipment, supplies or services. Often, such requests are valid and would improve operations. Still, all purchases must be considered in light of current and projected cash flows and profitability.
Owners should formalize the purchasing process by establishing the following:
- Inform employees that they should put all purchasing requests/suggestions into writing and deliver them to the owner for review (delivery can be through managers or supervisors). The written request should include reasons for purchase, approximate dollar amounts, suggested brands and models and anticipated savings or improvements in operations (i.e., reduced labor requirements, faster production, improved quality, increased safety, etc.). When employees put purchasing suggestions into writing, they must clearly think through all aspects of the purchase. This results in a more thoughtful, considered request, as opposed to an off-the-cuff suggestion not based on analysis or comparison.
- The owner may want to set up a board of key employees, managers or officers to assist during a review of purchase suggestions. A group decision can take the heat off an owner when turning down a purchase suggestion.
- When employees suggest major purchases, they could be invited to meet with the board to answer questions. Employees normally would not, however, participate in the actual decision process.
- The ultimate decision rests with the owner, who should convey his or her decision to the employee making the suggestion, either in writing or verbally.
This process establishes a formal, systematic procedure for making purchase suggestions. It allows the owner to make the final decision based on as much input as possible. And it assures that employees will consider their suggestions much more carefully before bringing them to the attention of supervisors.
