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5 simple steps for efficient purchasing

If you plan to expand your business this year, start implementing some controls in your purchasing cycle.
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Q: I am a small, start-up business owner—I recently started a neighborhood convenience store, which I plan to expand by the end of the year. I do my own bookkeeping. Can you give me some tips to make this task less of a hassle?

[related|post]A: One of the first things that you can do is to make sure that you have put in the proper internal controls in the business. Running a convenience store involves a lot of purchasing and inventory decisions. Without policies and procedures, anyone working for you can make a purchase request at random whenever they see the need to reorder an item. You may also find yourself struggling with excess inventory because of over-buying, or having poor quality, and thus slow-moving, items.  

 

This is a common issue faced by many start-up retail companies that have cash flow problems. When there is too much inventory that is hardly moving, a substantial amount of cash for working capital is tied up. As your payables to suppliers become due and without enough cash, you will have no choice but to unload some of your merchandise at huge markdowns to raise the needed cash.

 

If you plan to expand your business this year, start implementing some controls in your purchasing cycle. Effective purchasing is important in sustaining profitable operation of any retail business like yours. For starters, consider these five simple steps:

1. Make an order only on the basis of purchase requisition. The purchase requisition is a formal documented request made by your employee stating that additional merchandise has to be bought based on his sales forecast.

2. Locate suitable supplier. When a purchase requisition is received, you can ask for price quotations from several suppliers and select the best one based on your criteria.

3. Issue a purchase order. You issue this after selecting your supplier and when you are ready to make an order. The supplier must sign the purchase order after receiving it, as this will become a binding contract between you and him.

4. Follow up on purchase order. You need to follow up on your supplier from time to time to ensure that delivery is on schedule. This is necessary especially when the supplier needs to determine if your order is available in their warehouse.

5. Verify receipt of goods. When your supplier delivers the goods you order, someone in your company should take physical custody, inspect the quality of the goods and sign the carrier’s release if everything is in order.


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