How to Cut Your Business Costs

Hello %%First Name%%

Whilst increasing revenue has more potential to increase profit than cutting costs, in order to maximize profits it is important to minimize costs. So I thought it would be useful to look at a few key ways of doing this.

Of course, cost cutting won't necessarily improve profits if the quality of what you offer suffers but there will be many areas where costs can be cut without decreasing quality. A good financial information system will provide you with relevant information to help you make cost cutting decisions.

And, whilst fiscal responsibility is OK, don't waste all your time looking for the pennies on the ground.

The following are proven GENERAL ways to control costs...

• Measure in detail. You need to measure in detail, not globally in order to identify all areas you can save costs. Sometimes, a high volume profitable business could make cost savings but the volume of their business actually hides that fact that there is room for further cost savings.
• Spend to save. It is sometimes necessary to spend money in order to save money in the long term. For example, investment in machinery or redundancy payments.
• Controls can help to reduce costs. For example, portion controls, stock controls, cash controls.
• Measuring the efficiency of individuals or departments can identify where there is room for improvement.
• Budgets help to identify when costs are out of control or something is going wrong. The best way to budget is not "what did we spend last year and add 5%" but by starting from zero and deciding what you should be spending in each area.
• Changing the sales mix, for example in a restaurant can reduce wastage of products with a limited lifespan. A limited menu will help sell more of those items.
• Buying groups. Consider joining a buying group in order to take advantage of consolidated buying power.
• Standing orders and direct debits. Unless these are reviewed on a periodic basis, some can continue that you no longer want.
• Small print. Always read the small print on order forms.
• Frequency of purchase. Try to reduce frequency of purchases.
• Outsourcing. See if any items can be outsourced or a subcontractor used to save costs.
• Without charge consultations. Take advantage of without charge consultations from professional advisors.
• Early settlement. Offer to settle bills early in exchange for a discount when you buy.
• Grants. There are hundreds of grants available for businesses to offset against expenditure. Check you're not missing any. Business Links are a good source of information on grants.
• Government Agency advice. Many government agencies offer free or low cost business advice when you are starting out.
• Financing. Are the advantages and disadvantages of buying outright, HP or leasing capital equipment reviewed before each decision?

And for some SPECIFIC expenses...

• Labour Planning. Labour costs can be controlled by controlling overtime with planning and scheduling, labour saving equipment and improved layouts (e.g. drive through windows). Improved employee retention reduces recruitment costs.
• Yearly Hour Employee Contracts. Move employees onto yearly hour contracts to improve productivity. For example, rather than 48 weeks, 5 days a week, 7 hours a day, change the contract to 1680 hours a year. Then you can use staff more in busy periods rather than paying overtime. It gives staff blocks of time off and they don't have to sit around doing nothing and being bored.
• Self-Employed Workers. Can any of your staff be moved onto a self-employed basis to save employers national insurance costs as well as holiday pay, sick pay and maternity pay costs?
• Phone costs. Least cost routing can reduce phone bills by as much as 40%.
• Fax to email. Small business could do way with a separate fax line and use a fax to email facility whereby faxes appear in your email. Type "fax to email" into a search engine and many providers will come up.
• Advertising. Send camera-ready artwork with a cheque for 20% of the rate card price and a letter authorizing them to cash the cheque and run the advert whenever they have space. Many publications have space left they need to fill and something is better than nothing.
• Rates. Consider an appeal against your rates assessment. Many are higher than they need be.
• Rents. Especially in property crashes they can be re-negotiated, often in exchange for a longer lease.
• Bank charges and interest payments reviewed for accuracy. There are software programs that will do this and consultants who offer a checking service.
• Leasing and interest costs should be reviewed regularly to see if better terms can be obtained.
• Bank Charges...
  • Always negotiate the charges with your bank.
  • Use BACS - charges will be cheaper than paying by cheque.
  • Don't have more accounts than you need.
  • Most banks offer free banking for at least a year and maybe 18 months to small businesses. Have you considered a change of bank?

Finally, the largest expense is often TAX so use a great accountant who will slash your tax bills.

To discuss this or for any of your accountancy and tax needs, please give me a call. I'm very happy to visit you without charge for a consultation to discuss how we could help you further.