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Thursday, December 16, 2010

How to Compete with Walmart and Win!

The major issues facing businesses today is change.
Two of the sticking points I've noted in failing businesses are:
1: Laziness
2: Financial Games

The first one seems to be the most predominate, the "let some one else do it" attitude. The second one is from trying to make your business seem better than it actually is, hiding major flaws, and creating secret money pits in the process.

Most businesses are in it for the long haul, so why do they act like they are a temporary enterprise? Below I'll explain the major faults, and how to correct them, so that a business can thrive in today's competitive environment.

1: Don't rely on a limited number of suppliers!
It may take some effort, but shopping around for the best deals will cut your bottom line a great deal. In my area there is a major problem with grocers relying on SuperValu Wholesale . After digging around for about a half hour, I found several sources that are less expensive than SuperValu.
It may take even more work, but contacting the manufacturers themselves directly will yield wonderful results! I contacted Swift Pork and managed to get 40 lbs of cut pork chops about 35% less than Walmart's prices at the time.
Buying in bulk, and super bulk directly is a good thing, because you can negotiate prices than!

2: Do everything in house!
It is easy to let some one else do all the work, but it adds to the bottom line. It's unreal how much companies get raped by subbing out the work!
I managed to get some invoices from a janitorial company regarding one of their accounts. In one year they payed $46,000 in wages, and about $1,600 for material. Total cost to the company was $47,600. They charged $125,000 for the services!
Every company is out to make money, if you can't do it cheaper yourself, something is very wrong!

3:Buy, don't rent or lease!
Here are the financial games being played out! It is "it is too expensive" or "Lower Taxes" I hear the most, and it even appears in some business books.
Renting is just like an anchor, forcing the company to pay out month after month. Using national average prices of rented items, you can pay for most items in 3 to 5 years! If you buy the items outright, you can put the money to better uses in the long run, instead of making some one else rich!
As for the tax argument, I've seen companies throw boat loads of money out the window with out comprehending the mathematics behind it. One major corporation I found, was renting all their office chairs for $120 a month. The chairs themselves cost at the time $200 brand new. One large construction company I found was renting all their tools and equipment for 80% of their retail price a month. All in the name of tax reduction.
With out getting into a long winded talk on the subject:
A: You can wright purchases off on taxes, AND deduct depreciation
B: Taxes in the US are tiered, not ratcheted. To make things simple. Lets say that the first $1000 is taxed at 5% and any thing over that is taxed at 8%. If your company made $1,100 last year, you would pay $50 tax on the first $1,000 and $8 on the $100 after that, bringing the total tax to $58, bringing the net income to $1,042 after taxes.
If you threw away $100 in rented items to reduce tax load, you would save $8 in taxes, bringing your net income to $950 after taxes.
You loose $92 playing that game.

4:Buy your own warehouse

If you run a retail store, this enables you to buy in bulk, and make special buys at "off" times of the year.
It may cost a bit more, but the savings are huge in the long run, and it gets rid of a lot of supply chain problems.
It may be tempting to be lazy, and rent space and / or use the services of "managed" warehousing, but the costs are huge!
You can make some extra cash renting out the unused space!

5:Buy your own trucks
If you have a large store, and / or have many satellite stores, this can cut costs dramatically in the long run, and if things are slow, you can hire the trucks out and make extra money!

6:Buy your store locations!
This can be very expensive, but in the long run, saves huge amounts of money! In about 8 - 12 years you can pay off the location, with the average amounts paid for rent / lease.

7:Pay debt off as fast as possible!
Debt is one if the biggest things that slow a company down, and a huge money hole.
I know in modern society, businesses are encouraged to acquire as much debt as possible, but the long term drag is not worth it.
Lets say you borrowed $1000. Depending on interest rates in:
5 years you would have paid back $1,340
10 years you would have paid back $1,790
20 years you would have paid back $3,210
30 years you would have paid back $5,740
That money can be used for better purposes, than make a bank rich!

Using all these tips, you can reduce your bottom line drastically, and be able to lower your prices to the same, or even lower than Walmart's, while still making a huge profit!

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