One of the most boring aspects (and one I occasionally skip) is the checking of bills. Bigger organisations obviously have an accounts payable individual who deals with it, but when you are the owner of a small store like we are; you got to do it yourself.
It’s extremely important for us to check bills coming in because while increasing revenue is hard, driving costs down is even more important. If you figure net profit to be only 5%, then the other 95% are all costs. So, if your cost increases by 1%, that’s nearly a full 1% (0.95%) decrease in your profit margin. Put another way, if you run a $200k business, that’s $1,900 of loss profit.
How can it happen? A number of reasons, and the most common one’s are below:
Whether it’s price increases, a new levy or fee or just a supplier attempting to slip one pass you, intentional increases can often add to your cost base on a permanent basis. These changes are important to catch fast, because a cost increase can sometimes be fought and removed.
An example – phone lines. If you’re Canadian, you understand what I’m talking about. Watching for sudden increases or new charges is important, especially when you are a business. Sadly, they like slipping in charges for businesses more often than not.
More often though, the charges that you are looking for or the increases are unintentional issues. This is especially prevalent if you have non-standard contracts with the companies – whether due to negotiations or some other reason.
Here’s a few examples from the game trade – interest charges on mistakes made in the accounting department (e.g. invoices indicated unpaid even if they are) or cash discounts that are removed when they shouldn’t be or just product discounts that are calculated wrong.
Don’t get me wrong – you won’t always catch mistakes that are in you favour. Sometimes, it won’t but I’ll leave it up to you to decide what you want to do then. Still, in my experience when mistakes happen it generally is in your disfavor, which is why it’s worth checking.
How much can it work out to? Well, our most recent error catch was in the $500 region – though if we had been doing our job properly, it’d have been a lot lower (i.e. caught faster).