How to improve your procurement spending
16 November 2022
One of your biggest areas of business expenditure will be buying the goods and services that you need to operate the business. Whether these are raw materials, wholesale goods, or cloud services, you need someone to be in control of this procurement process.
Managing your procurement spending is a vital part of keeping the business cost-effective and competitive in the market. If you’re overspending on materials, or paying over the odds to your delivery partner, this can soon have a significant impact on your bottom line. How, then, do you get on top of this procurement spending and start becoming more efficient?
5 key ways to enhance your procurement spending
Managing cash flow is all about balancing out your cash inflows against your cash outflows. If your procurement costs are high, it will be very difficult to maintain a positive cash position, so reducing your costs, and agreeing better terms is all part of the procurement process.
In short, the less cash that’s burnt up in procurement costs, the better your business’ overall financial position will be. So, how do you go about reducing these costs?
Here are 5 key ideas to focus on:
- Reduce your base cost per item – where you’re buying in goods, one of the most important costs to consider is your basic cost per unit. This price is probably the most difficult cost to alter, but there are ways to reduce it. Get quotes from a variety of suppliers and look for the supplier that offers the best mix of value, quality and reliability, at an economical price. Negotiating with competing suppliers can help to knock the price down further, helping you cut that initial base cost, and reduce your everyday spending.
- Cut your logistics and delivery costs – when dealing with physical goods, these items will need to be transported to your premises and/or delivered to your end customers. These transport costs are unavoidable, but can be reduced as part of the procurement process. Look for well-priced carriers and logistics providers and see if their base prices can be negotiated down. Ask about discounts for faster payment, or options for joining a preferred customer programme, to help reduce prices. If you can offer a long-term relationship with the carrier, this can result in greater trust and openness over time, and more potential for negotiating price reductions.
- Nurture the best supplier relationships – the foundation for good procurement management is building solid relationships with your suppliers. The more stable your supply chain is, and the deeper the trust between you and your supplier partners, the easier it will be to negotiate good terms, beneficial prices, and flexible contracts. Nurture these relationships, pay on time, and set a good reputation with these suppliers. When renegotiating prices to cut costs, this will be far easier to do with solid foundations supporting your business relationship.
- Reduce tax and duty costs – depending on which goods and services you’re selling, there will be certain territory-specific taxes and duties to pay when buying and transporting goods. If you engage a tax adviser with industry-specific knowledge, they’ll be able to check that you’re paying the right taxes on your goods/services, and that they’re correctly categorised for taxes like VAT or GST. Working with a customs broker can also help to organise and streamline the customs process, and ensures that you’re paying the correct duty on all your imports and exports.
- Using tech to get in control of procurement – in the modern digital world, there are plenty of cloud-based procurement solutions to help enhance the management of your processes. Having all your procurement information in one place, accessible 24/7, in the cloud, has huge advantages. You can streamline your internal processes, manage risk more effectively, and regularly check your spending against budgets, cash flow, and expected expenditure. Where there are big variances, or instances of overspending, you can quickly take action to reduce the problem – by putting caps on spending, or switching to new suppliers that offer a more cost-effective option.
Talk to us about your procurement management
When you’re in control of your procurement spending, that’s good news for your cash flow, your end profits, and the long-term health of your supplier relationships.
Getting in control of your budgets, expenditure and overall spend management is a big part of the procurement process, and an area where we can help guide you in the right direction.
How often do you get to the end of a working day and wonder where the time went? Perhaps you never got to item 3 (or even item 1!!) on your to-do list. How can you solve this problem without working longer hours? The answer is very simple, but the art in the solution is where the gold is. The answer to free up time is to delegate more – either to existing team members, new people you recruit, or externally to outside contractors. However, if delegation were that easy, everyone would be doing it now, right? So, what is the art of delegation? We say art, because delegation is not an exact science; different approaches are needed depending on who the ‘delegate’ is. Time and effort are required to effectively pass on tasks to others. Often, the time the delegator needs to put in initially is greater than if they did the work themselves – that’s why so many people don’t delegate. The view that ‘it’s quicker for you to do it yourself’ holds you trapped and unable to be more productive and effective yourself. It also stops others from developing better ways to do things than you already know, i.e. if you teach them your way, then they can master that AND add their own value – two minds being better than one. Here are some essential principles to apply to help you to delegate (as opposed to abdicate!): Delegation Assess the task, issue to the right person and support - helps build trust and respect Be specific and crystal clear for greater communication Request they repeat back instructions, so you know you were understood, enabling higher productivity Set a time frame and request clarification that the task has been achieved, ensuring jobs are completed on time and are profitable Both parties to review - opens the door for future work Abdication Issue tasks to anyone and forget about it - shows distrust and a lack of respect Giving unclear and little information results in poor communication Don’t ask if you were understood - results in low productivity Don’t set a time frame – it can mean jobs are delayed and over budget Different expectations can result in disgruntled clients No review results in no future work Delegation is a skill to be learned; applying these principles consistently will ensure long-term success. “No person will make a great business who wants to do it all himself or get all the credit” – Andrew Carnagie Action list: Which tasks am I currently doing that I could delegate to others? What can I do with the time I free up? Who are the best people for me to delegate these to? (Make sure they want to do these as part of their career development). What is the best way to document what is expected and how it should be done? What support and review process is needed to ensure success?
Logbooks are useful records of business expenses relating to work vehicles and this is important when calculating what tax deductions you can claim. Depending on your business entity type, different tax rules apply when you use motor vehicles to earn income, and you might use a logbook to track expenses in different ways. Sole traders and partnerships can claim income tax deductions for motor vehicle expenses if the vehicle is used to help earn income for the business. If you don’t use the vehicle exclusively for business, you can’t claim 100% of vehicle expenses. You need to work out the business use of the motor vehicle to calculate what deduction you can claim. You can do this either by using a logbook to track actual costs or using a logbook over a test period to establish the average business usage. Companies are a bit different. Where company vehicles are used partly to earn income and partly for private use, vehicle costs associated with private use are liable for FBT. Companies can use logbooks to keep track of work-related costs and show either that the vehicles are work-related vehicles which don’t attract FBT where used for work purposes only, or that FBT is accounted for correctly where there is some private use of other vehicles. The logbook becomes a record of work-related use and of private use subject to FBT. Where a company restricts private use of the vehicle, a logbook is used as evidence that employees have complied with the restriction. Whatever type of business structure you have, we can advise you on keeping good records and understanding what you can claim.
Major changes to KiwiSaver were announced in Budget 2025. The KiwiSaver voluntary savings scheme is aimed at helping New Zealand workers save for retirement or buy a first house. But with the rising cost of living, action was needed to make KiwiSaver fit for purpose and more fiscally sustainable as a savings scheme. How will these changes affect your employees and your small business? Let’s take a look at the details of these KiwiSaver changes. Changes affecting your employees First off, let’s outline how the initial changes announced in Budget 2025 will affect your employees and other Kiwi workers: Since 1 July 2025: Younger workers will qualify for government contributions: People aged 16 and 17 will qualify for government contributions, so long as they meet other eligibility requirements. Prior to 1 July 2025, members must be 18 or older to qualify. Government contributions to halve: The government KiwiSaver contribution will halve, reducing the maximum government contribution from $521.43 to $260.72 each year. High earners to lose government contributions: People who earn more than $180,000 of taxable income in a year will no longer qualify for government contributions. No change to 2025 government contributions: There’ll be no change to government contributions for the year ending 30 June 2025. These will be paid in July and August at the current government contribution rate. Changes affecting your small business Next, let’s lay out the KiwiSaver changes that will directly affect your business: From 1 April 2026: Employer contributions will rise to 3.5%: From April 2026, the default KiwiSaver contribution rates for both employers and employees will rise to 3.5% – up from 3%. Employees can choose to remain contributing at 3%: Employees who are members of the KiwiSaver scheme will be able keep their contributions at the current rate. They can apply for a temporary rate reduction from 1 February 2026, if they want to continue contributing at 3% from 1 April 2026. Employers can match the rate reduction: As an employer, you’ll be able to match your employee’s temporary rate reduction. Once your employee moves to a higher contribution rate, you’ll need to increase your employer contributions to the default 3.5% rate. Inland Revenue will notify you of this change. Younger workers will qualify for KiwiSaver contributions: People aged 16 and 17 will qualify for employer contributions. If they contribute to KiwiSaver from their wages, you will need to start making employer contributions. From 1 April 2028, the default contribution rates for employers and employees will rise again to 4% (up from 3.5%). Getting ready for the KiwiSaver changes These amendments to KiwiSaver could have a significant impact for your small business. Increased employer contributions will increase your payroll costs and stretch your cashflow, as will making contributions for younger workers in the 16 to 17-year-old age bracket. You'll also need to update your payroll software and processes, to ensure you’re making the correct contributions for the right people, at the right rates.
To discuss all your account matters please call us on 09 438 1001
