Binary Business

According to the Small Business Administration 44% of small businesses fail within two years. Binary Business will be turning five this year. One of the first lessons I learned was to survive you had to run the business as cheaply and efficiently as possible. Every year I take a look at the books and look for ways to cut costs. This year I cut $360 directly, reclaimed another $9,375 in billable hours and 30 days off the average age of my receivables. I did all this by firing someone. That someone was the United States Post Office.

The Problem

As a small service business I spent a lot of time and a non-trivial amount of cash sending invoices. In the past I used a service similar to Stamps.com to purchase postage through the post office. Each of my invoices had to be stamped and delivered to the post office.¹ With the cost of the service at $16 and each stamp costing $.42 each I was spending up to $10,000 a year just mailing my invoices. In addition the average age of my receivables was ballooning to more than 45 days.

Over the past couple of years these expenses alone consumed 10% of my gross income. One day while fighting for a spot at the post office I began to wonder what exactly I was paying for. In the most simplistic form all I needed was to present my clients with a bill. I was clinging to the sending paper invoices simply because that was what everyone else did and had been the norm for a long time. It occurred to me that I was generating the invoices on my computer and with a little work I could email invoices to my clients that were just a professional as the ones that I had been mailing.

Facts & Figures

The cost of postage stamps in 2005 was $0.37. Those same stamps cost $0.42 today.

The cost of a gallon of gasoline in early 2005 was $2.50. The current cost of gasoline is around $4 a gallon. As as large percentage of the costs of postage is a result of fuel costs, we can reasonably expect for stamps to get as high as $0.67.

While stamps and gasoline are variable costs, email is a fixed cost. This assumes that all of the businesses in question pay a fixed rate for Internet access, as is the norm To produce the most dramatic affect on the bottom line, variable costs should be cut.

Services such as Stamps.com that replace postage meters typically cost $15 to $20 a month.

All accounting packages commonly in use (Quicken, Peachtree, MYOB) all have the ability to send invoices via email.

The Solution

As you may have guessed from by now, my solution was to email my invoices. My accounting software (MYOB) provides this capability and makes it a one click process. I also took the time to edit the template that MYOB uses to mimic my letterhead by inserting the company logo and changing the font. Additionally I notify and remind my clients that all invoices are sent by email to ensure that they do not overlook them. I remind them to check their spam folder for invoices periodically. I also setup a separate email account (invoices@binarybusiness.net) to both send and receive invoices on my end and encourage my clients to do the same.

1. I work from home and must carry my mail to the post office to ensure it is not damaged by weather while waiting in the mailbox. Although you may not have to deliver your invoices you are likely spending time preparing the invoices by printing, stuff envelopes, attaching stamps, etc that constitute an opportunity cost.