Reid and Knowledge Equity director Courtney Clowes say merchant fees are an easy way for banks to get more money from small businesses, but if you’re clever, there are ways to save money in this area.
“Banks play a little game. They charge Visa and MasterCard fees, but these fees vary dramatically depending on which industry you are in and they want you to have all your banking with the one bank.
“I dealt with a gardening/raw materials supplier who did 80% of transactions on card. He thought he had to stay with the bank the transaction machine was with, but you can actually change. He was playing 1.9% a transaction and he’s now down to 0.9%. For businesses like law firms which don’t have physical products, merchant fees become a very expensive part of the business because they are hard to pass on to consumers,” Reid says.
Clowes says banks squeeze small businesses most during difficult times.
“There are lots of little banks fees and banks like it when you’re in a difficult position and they squeeze you. They’re going to squeeze you right when you’re not in a position to deal with it,” he says.
In order to survive in an ever-changing market place, Reid says businesses must learn how to evolve, or face extinction.
Reid says being able to adapt can bring with it great cost-cutting possibilities.
“It comes down to awareness of your client base and companies need to be able to evolve. My dad used to work for a man who delivered ice and then they started selling fridges in Australia. More and more fridges were sold and then one day the man who sold ice was out of business!
“Another example is a tourism company operating in Cairns. His business dropped 50% and he didn’t know why. His daughter found him on Trip Advisor and he had two negative comments, but this man did not know what Trip Advisor was. He’s been in business for 30 years, but had no idea who his target audience was. He thought he was getting his business from handing out his brochures around at hotels. Since then he’s had to realise at least 50% of his business was coming from online,” he says.
Reid says this provided the tourism operator with a variety of saving opportunities – by realising half his business was coming from people online he was able to save substantially on marketing costs.
Something many businesses don’t consider as a cost-cutting initiative is negotiating with suppliers, but Reid and Barned say it doesn’t hurt to ask suppliers, ‘what can you do for me?’
Negotiations can be in regard to things ranging from utility costs to group buying and can produce significant savings.
Reid says many small businesses pay retail rates on things such as office supplies because they don’t have the volume of purchases to buy in bulk, but he’s worked with companies to save thousands of dollars a month through buying wholesale or arranging group buying agreements with other, similar businesses.
Reid says SMBs can save 30% in their non-core spend when they’re encouraged to import things together and save on things like shipping costs.
“Direct Plasterboard outlets save $7,000 a month, it’s relative to its size, but an accounting firm in Sydney also saves $1,000, which obviously equates to $12,000 a year. A travel agent in Croydon Hills, Victoria has negotiated a group buying arrangement with three other local travel agents and the local florist and consequently save $50 a week,” he says.
Barned says businesses need to “take a good look at their waste” and go back to suppliers to negotiate prices.
“You need to consider, how you are using your utilities such as your water, gas and telephones. These are costs you may not have originally started off with and you need to go back and negotiate with your suppliers. If you don’t ask you don’t get.
“Tell your suppliers you have a better offer or look for ways to reduce what you’re using,” she says.
