Every small business has to make purchases to function. What you have to purchase depends on what you do and what you need to do it.
Most of your purchases will be easy to make because there are few options, the cost is minimal, or the choice is very obvious. With every purchase, you have to evaluate your needs, the cost, your budget, and where to buy. It may even be a good idea to create a formal purchasing program within your small business. Take our small-business advice below and consider these four best practices before making a major purchase.
1. Evaluate Your Needs. One does not simply walk into a store and make a major purchase on a whim. It takes planning, funding, and execution. Taking the time to evaluate your company’s needs before you buy is the best step you can take in saving money, time, and heartache. Obviously you don’t want to overspend, and under-spending can be just as detrimental. Don’t spend just for the sake of spending, either. You might not really need that upgrade.
When determining what you need, make sure to involve the employees who will be using the new tools. They are the experts. They know what is currently working and what isn’t. They have intimate knowledge of your current system’s issues. Also keep in mind, however, that they might not know what is available or fully understand the logistics behind software implementation, maintenance issues on new equipment, or even how to use the new tools. Don’t overdo it. Consulting every employee might complicate the evaluation process. Keep the research to a small group.
2. Determine the Cost. This step is likely the easiest one to take. Determine what you need to purchase, and list the cost. Keep in mind that a product or service cost might not be as simple as its listed price. If you are purchasing never-before-used machinery, software, or tools, do not forget to plan for training. That will add to the cost. Don’t forget to account for time lost to training as well. When your employees are training, they won’t be producing, and they won’t be billable.
Whatever it is you are purchasing, it will require an investment of time and money. Determine what these investments will cost you, and then determine what it will take to recoup the cost. This is referred to as calculating your return on investment (ROI). Hopefully the new tools you are purchasing will either give you a new product to sell or streamline your work procedures, saving you cost or time. Either way, new income should be coming in. Knowing how long it will take you to recoup your investment will help tell you if it is a worthwhile expenditure or not.
3. Determine Your Budget. Coming up with the necessary funds for your purchase is likely the most painful part of the purchasing process. Your best bet is to plan ahead. Create a regular budget item for these types of purchases. Not everything can be planned for, obviously, so make sure to set aside emergency funds in your annual budget.
When you determine your company’s needs, also determine when you will need an item. Once that has been decided, you can start planning your budget around making your purchase. The best way to find the money for your purchases is to plan ahead.
4. Select a Qualified Supplier. Every purchase you make requires a supplier. You have to buy your goods or services from somebody or somewhere. Make sure the supplier is reputable, offers warranties, is trustworthy, and is able to deliver the goods. You need the supplier’s products or services to do your job. Don’t miss your deadlines or find yourself with unacceptable goods because your supplier wasn’t worthy.
Start by conducting research, and find out which companies provide the service you need. Once you have compiled a list, start a bidding process. Competition breeds better services and products. It gives you the chance to do some “comparison shopping,” and it provides more in-depth information about the providers.
When the time comes to make a major purchase for your company, be sure to fully vet the decision. Start by determining exactly what you need, what will benefit your company in the best way, what you can still use, and what needs to be replaced. Once you’ve established that, find the actual cost, and remember to account for time, effort, and lost billable time.
Next, find the money. It’s best to plan ahead when you can. Finish up by finding the right supplier. While these steps may seem natural for most of us, it’s important to make sure you completely follow through with each one of them.
For tips to help you decide whether your business should be buying or renting software, check out Buy or Rent Software: What’s Best for Your Small Business? [Infographic].