What Entrepreneur Should Know About Buying and Leasing Technique in the Business?

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By: Site Engineer, Staff

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The entrepreneur’s success lies squarely on the quality of his buying and prudence in spending. The entrepreneur should be aware of the fact that the success of his business lies in how well he buys and improves the business. The entrepreneur usually buys raw materials, goods, and equipment in order to make products and sell, provide services and resell.

Importance of Buying

Before an entrepreneur buying his goods he should find out all the different materials he needs, what quality, his customers want, how much he needs, and how often he needs the materials.

The importance of good buying includes:

  • To maintain standards of quality in materials based on suitability for use.
  • To do so with maximum investment in material inventory consistent with safety and economic advantage.
  • To avoid duplication, waste, and obsolescence with respect to the material.
  • To maintain the competitive position in his industry and to conserve his profit position, insofar as material costs are concerned.
  • To procure materials at the lowest cost consistent with the quality and service required.
  • To maintain continuity of supply to support the manufacturing schedule.

Methods of Buying

There are certain methods available to the entrepreneur to explore before buying his goods, raw materials, equipment or other things his business needs.

By the entrepreneur, the followings are the common methods of effective buying:

1. Place the Order

The entrepreneur must always place the order in writing, stating clearly the quantity ordered the types and necessary other information must all be written on the order.

2. Always Check the Supplied Goods

The whole information regarding the goods must be checked properly to correspond with your order note. Marry the delivery note or the invoice with your order note. Marry the delivery note or the invoice with your order note and the physical goods supplied; settle all disparities before signing for your supplier. If there is any short supply or wrong supply, sort them out and reconcile both books before payment is made.

3. Payment Method

Payment can be made either in cash or by cheque. The entrepreneur is always advised to collect a receipt for every payment made to his suppliers for record keeping and proof of payment.

4. Analysis of his Business Needs

The entrepreneur should endeavor to see that he buys the right quantity he needs, prepared to pay the right price when he needs those goods and materials or equipment so as to meet his customers’ needs accurately.

5. Choosing the Best Suppliers for his Business

The entrepreneur should be careful in choosing his suppliers not necessarily fixing himself on one supplier. He should always compare quotations to find out exactly what each supplier can supply. Always compare carefully the quotations you have read.

6. Source Information About Different Suppliers

It is advised that the entrepreneur should source information about his different suppliers from small-scale organizations, consultants of such business, business friends, magazines, trade journals, telephone book, and newspapers. He should bear in mind such information about the delivery methods of the supplier, the reliability of each supplier in question, the prices, credits and discounts of the suppliers and the type of goods, materials or equipment each supplier can offer when chosen.

7. Make Contact With the Suppliers

After all the necessary information have been obtained about each supplier and what he can offer, go ahead to make contacts, either through telephones, writings or physical visits. Make sure that each supplier gives you a written quotation stating clearly the terms of delivery, prices, payment terms, and the kinds of the goods, materials or equipment you have agreed to purchase.

The Problems Entrepreneurs Face in Buying Process

The entrepreneur is advised to adopt what we call “value analysis” in his purchases. Value analysis is the technique, which involves an organized, creative, approach to identify unnecessary costs in and substitute different materials and processes to obtain equal performance at lower cost.

The purpose of value analysis is to identify and remove unnecessary costs from a product without reducing its quality, thereby improving its value.

The entrepreneur is therefore faced with some buying problems such as:

  • Establishing buying controls to ensure the maintenance of balanced stocks.
  • Choosing a proper source of supply or merchandise resources.
  • Negotiating satisfactory prices and terms of sale.
  • Determining the kinds and qualities of merchandise to purchase.
  • Deciding on the quantities to buy.

In solving these problems the entrepreneur must apply value analysis to optimize his buying routines.

The 4Rs of Buying

The entrepreneur must adopt the 4Rs of buying so as to satisfy his customers’ wants and needs.

1. Right-Price Buying

The right price, which the business can afford and the customers are willing to pay, should be adopted when buying.

2. Right-Quantity Buying

The right quantity needed by the business and customers should be bought. Buying very large quantity that may spoil in storage or little quantity that will not be enough should be discouraged to ensure efficiency.

3. Right-Quality Buying

It is not expedient enough to buy big quantity of goods because they are cheap. Instead of buying 200 spoilt oranges at the cost of $10.00, it is better to buy 20 good ones at the cost of $10.00 because it may become costly when the entrepreneur discovers that only 10 oranges are actually good. He will suffer two problems here, the problem of little quantity below the demand of the business and high cost.

4. Right-Time Buying

This right time buying is very expedient when buying perishable goods. The right time of buying must be when in need of both the business and the customers.

The final advice to the entrepreneur is that buying well will definitely help him to increase his sales, increase his profits and reduce his operating costs. Any reckless buying must quickly reflect in the sale returns and profits.

Reasons for Leasing

In many cases, some equipment is so expensive that the potential users hesitate to make purchases because of these reasons:

  • If the machine is new or the need for it uncertain, the buyer will feel more like trying it out, since he can return it and proves unsatisfactory or unnecessary.
  • If the firm lacks adequate to finance or wishes to conserve its working capital for other corporate purposes.
  • If the need for the installation is uncertain or sporadic.
  • If the equipment offered represents a new development.

In most cases, the desire to conserve working capital and enjoy the freedom of allocating funds is the major reason for leasing.

 

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