Written by Alexa Guidone
National news headlines have been dominated with speculation regarding the impending fiscal cliff. For those of you unfamiliar with the term, “Fiscal Cliff” was first coined by Federal Reserve Chairman Ben Bernanke in an address to the House Financial Services Committee. It is “the term to describe the automatic spending cuts and tax increases that will go into effect if Congress doesn’t come to an alternative agreement”. To be more specific, roughly $560 billion in automatic government budget cuts and increased tax rates, the effects of which could be felt as early as January 2, 2013. With the New Year right aroundthe corner you are probably wondering, “What can I do to prepare my business?”
With the forecasted numbers so high, the aftermath of the fiscal cliff is undoubtedly going to be felt by everyone including large government funded federal programs to businesses and individual working-class families. If a revised deficit-reduction agreement is not reached we could find ourselves in yet another economic recession. With the predicted outcome being so bleak, already strained budgets are being stretched even further to cut back on indirect spend which makes up nearly 40% of a business’ overall expenses. Charles Dominick, Chief Procurement Officer at Next Level Purchasing confirmed this writing, “[the Fiscal Cliff] has US Businesses preparing for a worst-case scenario and ‘tightening
their belts,’ really restricting expenditures to preserve cash.” Not only is the impending fiscal cliff forcing businesses to closely examine their current spend it is also forcing them to reevaluate or implement a strategic plan where there may not have been one in the past. Now more than ever it is important to start looking for savings in your procurement department.
So what can you do to prepare your business if we “go over the edge”? In a December 2012 article from Financial Executive Magazine, entitled “Understanding Procurement’s Role in Maximizing Corporate Budgets”, Joe Payne and William
Dorn of Source One Management Services, LLC offer some tips for procurement and financial departments looking to stretch their budget:
- Collaborate: Financial and procurement departments should collaborate to maximize proficiency on all budget planning activities. Developing a strong partnership between the two departments will ensure all resources are engaged to develop creative and strategic financial solutions.
- Gather Intelligence: Historical reports contain information that can provide valuable insight into the current financial state of your company. They can also reveal rogue spending habits and present opportunities for process improvement and cost reduction.
- Eliminate Bad Habits: Eradicate poor sourcing practices such as overly complex RFPs and the inefficient “three-bid process,” which will not only eliminate potential suppliers but also can limit the overall outcome of the sourcing
These are just a few of the ways you can prepare for the coming fiscal cliff and maximize your businesses budget. Taking a little time to prepare now will ultimately pay-off in the long-term.
While the possibility of a fiscal cliff may seem dismal to some, it could reveal the potential for sustainable cost savings for your business. Having a practical savings plan should be a best practice for your business year round. Following
a few simple steps to prepare your financial and procurement departments for any impending outcome will not only help maximize spend but will also help start your business off right in the New Year.
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