Key Tips to Cutting Your Costs Without Harming Your Business
By Ensors Chartered Accountants
The fastest way to increase profits sustainably is to improve the margin by reducing costs.
However, many business owners are concerned that reducing outgoings and increasing margins means sacrificing quality or customer service. So, they focus most of their efforts on increasing revenue.
Yet, in a time of economic uncertainty and increasing import costs, it is more important than ever to control expenditure and overheads.
Here are six ways to reduce costs without harming your business.
1. Know the numbers inside out: Information is key. Your bookkeeper should be providing you with detailed breakdowns of costs including comparison to budget and previous years.
Top Tip: Annualise and scrutinise the small recurring costs. Which costs do you really need? It is easy to let small costs on contract run on when in fact the value to the business is not there.
2. Review the budgeting process: It is all too easy to take last year’s budget as a basis for this year. Too often the starting point for a budget is last year’s actual costs. Zero-based budgeting forces managers and business owners to think hard about spending choices. Before setting the budget, there must be clarity on the business objectives, so that at every level resource and spending decisions reflect the strategic priorities. It is also important that those setting budgets are the same individuals who make the spending decisions during the year.
Top Tip: Include your employees. Educate them on the P&L and why you want to cut costs. Seek their input and reaffirm that you’re targeting resource which will drive the business forward. Consider getting an independent consultant or adviser to review your budgets and process.
3. Look at your structure: Departmental and office silos tend to breed duplication of costs and thwart attempts to improve productivity and collaboration.
Top Tip: Centralise support functions wherever feasible.
4. Everything is negotiable: Ask suppliers for a better rate and whether they can do a better deal by changing how you order. Ensure your team are comfortable with doing this. In the UK we tend to be very ‘British’ and unwilling to negotiate.
5. Be brave on staffing costs: Typically, one of the largest costs in a business is people. Businesses need to review performance of every individual and ensure staffing decisions are commercially driven rather than emotionally driven. Firing employees is never easy, but the delay in taking a decision may be harming the business and impacting team morale.
Top Tip: In a difficult employment market, be prepared to think outside the box. Can you contract out? Can you hire someone less experienced? Embrace diversity in all its forms.
6. Look at your office space: Finally, look hard at your office or commercial space. Can you negotiate better terms with your landlord? Should you move? Can you reduce your space requirements by flexible working?
Above all it is important to remember that investing time in reviewing your costs objectively and making sure that expenditure is truly aligned to the business strategy will ultimately drive business efficiency.
Contact Ensors Chartered Accountants on 01473 220022 or visit www.ensors.co.uk