IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Robyn S. Bowles of Schooley Mitchell (https://www.schooleymitchell.com/):
Enhance Post Acquisition Company Profit with a Vendor Audit
You’ve spent months working with a number of financial and business advisors and you have finally completed the purchase of a new business…now it is time to really “look under the hood”!
You begin to dig in and assess the current state of the business on a more detailed level, trying to find ways to increase your cash flow and overall profit. You will review things like the current product offerings and pricing, marketing plans, the quality of the sales team, etc.
What about your business expenses?
How do you know if previous ownership optimized their expenses? How do you know if previous ownership kept vendors out of a sense of loyalty or because they had always done things a certain way?
In my experience, many business owners stay with their current vendors because of a sense of loyalty. Over time they have formed professional and sometimes personal relationships with their vendor sales reps. They will say that the vendor has “always been good to them” and this familiarity can breed complacency when it comes to cost.
Another reason that many business owners stay with their current vendors is an aversion to change. There is a fear of trying something new and different, even if it would result in cost savings or better service.
Here are some real-life quotes that I have heard when talking to business owners about vendors:
“I have been using the same vendor and sales rep for almost 20 years; I have never really thought about making a change”.
“Patty has been handling our purchasing for over 10 years. I am sure that Patty is doing a good job and I don’t want to upset the apple cart.”
“My brother-in-law works for our vendor and I cannot really make a change without causing family issues.”
“My employee told me that there is no other vendor that can do what our current vendor does for us.”
A vendor audit is great way to know if your business expenses are optimized, as it will answer the following questions for each cost area that is reviewed:
-What is the current cost structure and how does it compare to the marketplace?
-Are there any billing issues or errors that have been missed or ignored?
– Are there products or services that are being paid for but are redundant or simply not being used?
-Are there any process or procedural changes that would help reduce your business expenses?
Here is a real-life example of how a vendor audit helped save a family business money.
Bob inherited an e-commerce business from his father, who passed away unexpectedly. While Bob had been somewhat involved in the business, he was not engaged in the detailed day-to-day operations.
Quickly realizing that he was “over his skis”, Bob hired a Business Coach to help him get his arms around the business. That Business Coach asked Schooley Mitchell to come in and help reduce some expenses so that the business would have money to invest in a new e-commerce platform and updated website.
Like other e-commerce companies, the business had significant costs in the areas of merchant services and small package shipping. Bob’s father had used the same small packaging shipping vendor for many, many years and Bob did not feel qualified to compare vendor options and make a good decision for the business.
Schooley Mitchell performed a vendor audit and was able to keep Bob’s business with the same vendor while saving Bob’s business 29% on their shipping costs.
For Merchant Services, Bob assured us that we probably would not find any savings, as the long-term vendor had told him that he was getting the “best rate available”. The vendor audit resulted in savings of 37% on merchant services and Schooley Mitchell lead the implementation of the new vendor.
Why not take a fresh look at the vendors being used in your new business? With Schooley Mitchell, vendor audits are always risk and cost-free.
If you have questions relating to the content of this article or a Schooley Mitchell facilitated vendor audit, Robyn Bowles would welcome the opportunity to answer them. Ms. Bowles can be reached at (810) 772-9472 and robyn.bowles@schooleymitchell.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.