Seven questions to ask before purchasing big-ticket items
By Leon Gettler
When you buy any big-ticket item for your business, you're taking a risk - a risk that should be carefully measured. So how do you know you're doing the right thing? Here are seven key questions every small business should ask.
1. Do you have a purchasing policy?
Every small business needs one. The policy would answer a number of important questions. Who has the authority to purchase items for the company? What items can that person purchase? What's the budget for these purchases? What is the company's position on supplier competition, acceptance of gifts and potential conflicts of interest?
2. What's your budget?
As with any business expenses, you need to budget for big-ticket items. Still, that might require you to do some shopping around. You can't really know how much it's going to cost until you compare a few potentials. Once you get a sense of what they cost, work out how much you’re willing to spend. Ideally you’d purchase it with cash, rather than credit.
3. How does the ordering system work?
This sets out all the steps needed for ordering, receiving and paying for the item. A good ordering system should improve cash management, aid in inventory control and increase the overall profitability of your company.
4. Have you done your research?
Have you checked all the prices and warranties? Have you made any comparisons? What about the after-sales service? Before you buy an item, contact suppliers and compare prices. Also look at delivery options and expenses. You can do this by visiting suppliers' websites, and you can also request a quote in writing.
5. Can I get a discount?
Some suppliers extend discounts to their customers. These discounts can apply to individual purchases or to a specific group of purchases made over time, if you are making a blanket order for many items. Some suppliers provide seasonal discounts for items for items being sold out of season. Check the season and see if you can get a cut rate.
6. What's the procedure for goods received?
These are procedures that ensure the requested goods are received, counted and appropriately stored, so nothing gets lost.
7. Do we really need the item?
It might seem obvious, but it's an important question to ask. Is the business over-ordering or under-ordering? This is critical for inventory management.
All this is part of the necessary due diligence - do it thoroughly and it will boost your bottom line.