Regaining control of your business costs can be a relatively easy and quick process, which will leave your business in a far better position.
Many business owners will make sure to minimise their spending in the initial setup of a company. This can be a great idea, as it makes it easier to turn a profit and should limit losses if the business begins to fail. In these early stages, many owners will continue to control costs across all areas of the business.
However, with time this will change, as the business will begin to grow and need to take on further members of staff.
As there is more and more going on in the business, it is easy for the owner to lose track of all the business expenses. It is also possible that systems can become more inefficient as this happens. Unfortunately, the net result of all this is that the business starts to waste money, by paying too much or buying unnecessary items.
Sometimes a business owner might also begin to appreciate familiarity. When a business first starts, an owner would shop around for the best prices. However, over time many businesses will start to rely on regular suppliers. Although remaining with a familiar supplier could seem a sensible idea, it is important to remember, that there could be better deals elsewhere.
Failing to control your business costs could result in serious cash flow issues, which could ultimately end in the closure of your company. At the very least, your business will not be as profitable as it could be. You might also be wasting money, that instead could be used to invest and develop the business. But don’t worry, as regaining control of business costs can be a quick and easy task and will leave your business in a far better position. This guide will show you how it’s done.
How to Get Your Costs Under Control
1. Assess Your Current Costs
Make sure to take a thorough look at all your outgoings and to not forget anything. Major costs may include wages, premises, utilities, materials, travel, transport, equipment, IT, marketing, telecommunications, and finance. It’s a good idea to break down each one, to better understand them. Keep an eagle eye out for any less obvious costs. Your aim is to find out exactly how much you are spending, what you’re spending it on, and whom you’re buying it from. Using a spreadsheet or accounts software to detail your outgoings would be very sensible, as this will make it easier to analyse the data. If you want to learn how to calculate simplified expenses, check out our guide here.
2. Understand Your Spending Habits & Trends
The next step would be to compare your spending over the most recent 12 months with previous years. Have your costs increased? Why so? You may need to discuss this with other members of your team to work this out. Have any of your costs gone down? Why? You need to clearly establish why any changes may have happened, in prices or consumption habits.
3. Remember Your Objectives
Reminding yourself of your business objectives is vital, as it will help you to judge whether spending is justified and if any of your expenses aren’t aligned with your business goals. Are you being too ambitious? Should you be paying less for supplies? Are you over-spending by bringing non-core products to market?
4. Involve Your Staff
You will need to consult your team to come up with successful cost control solutions, as it will make the process a lot easier. If you employ members of staff, then ask their opinion and see if they have any ideas on how to reduce business costs. Talking to employees is also a great way to discover what time-wasting and resources problems there are. Reward those that come up with the best cost-saving ideas. If part of the cost-cutting process involves making staff redundant, then make sure you communicate clearly with your employees and help them understand why this action is necessary for the business.
5. Speak to Your Customers
You may be providing customers with things they don’t necessarily want or need. The best way to work out if this is the case is by asking them. Present it as something you are investigating to ensure customers are happy with the business and its services. Why pay for excess packaging that the customer doesn’t want? Why provide a side salad if the customer doesn’t eat it? Why send customers leaflets that they don’t read?
6. Start With the ‘Easy’ Wins
When initially assessing the business to see if there are any areas where money is wasted, make sure you don’t rule out anything. Savings can be made fairly quickly and easily without affecting the quality and performance of the business. If you’re far exceeding your budget, then try to look to make savings in these areas first. Sometimes just using less can be a good start to make savings, such as reducing energy usage. Ensuring that the premises aren’t being overheated or that lights aren’t left on unnecessarily can also provide large savings. Finally, looking at cutting down unnecessary journeys (e.g. deliveries or client meetings) will significantly reduce travel costs.
7. Look For Less Obvious Savings
There may be some areas where it is simply not possible to reduce business costs, but never consider anything a ‘fixed cost’. Also, try to look for ways to make processes more efficient and consider whether technology could help. Ask your bank if there are charges that can be reduced. Double-check supplier invoices to work out if you are being overcharged. Investing in systems that can replace manual processes can be a great way to save both time and money. Similarly, bulk purchases can also save time and money.
1. Focus On Human Resources
The first important issue to consider is whether job cuts are a necessary part of the process, which is never going to be an easy decision. Remember, you make roles redundant and not people, and only if there is no other viable solution. A cheaper option could be to outsource certain roles within the business (e.g. accounts, recruitment, payroll). Another choice could be to use freelancers, which could also prove very cost-effective. Enabling staff to work from home will also help cut down costs, as long as productivity and output don’t suffer as a result.
2. Speak to Your Suppliers
Tell your suppliers that you need to cut down on cost and see if they can improve their prices or provide a better value for money service. If so, then even though you may have built up a valuable relationship with them, then it may be time to explore other options.
However, act with caution. A cheaper price may come at the expense of inferior quality and service. Don’t focus purely on price, make sure to consider value for money. Negotiating too strongly with existing suppliers can backfire. You might get a better deal, but simply leave your supplier wanting to make back any lost profit on other orders. It’s important that both sides feel reasonably satisfied when you negotiate with your suppliers. Building up strong relationships could lead to better deals in the long run. Another great cost-effective option could be to purchase from a limited number of suppliers.
3. Make Unpopular Decisions
Cutting costs will often involve making some unpopular decisions, which could cause some unfavourable reactions, particularly if redundancies or cutting back on overtime is required. That doesn’t mean you can shy away from any business responsibilities. Introducing new processes can be difficult and it can be a lengthy job. There may even be some resistance to change, which you will need to manage.
Think About the Future
1. The Dangers of Ill-Considered Cuts
If you cut down costs too severely or in the wrong parts of the company, then this could leave your business in a worse position than before. The quality of your products or services could decline and result in lost sales. High spirits among the team may begin to drop, especially if any redundancies have been made and there have been cutbacks on overtime and bonuses. Knowing that you’re making tough decisions in order to make good business decisions can be helpful and it is vital to communicate clearly with your employees at all times. If not, you may risk losing some excellent workers. Many business owners may immediately cut the marketing budget when they are trying to make savings, but if this is done too severely then sales could be seriously damaged. This could threaten the long-term prospects of the business. Before making any cuts, think very carefully about the implications of your decision. Take a look at our guide on low-cost marketing ideas, if you’re looking to try to make sensible savings in this area.
2. Draw Up New Budgets
Take a look at the forecasted revenue for your business over the next 12 months and decide how much of that needs to be allocated towards operating the company. Your operating costs should then be divided into separate budgets. It may be a good idea to revisit previous budgets. If not, think about how much money your business needs to spend in order to carry on functioning successfully. When setting a budget, don’t be stingy or overly generous. Once you have found a realistic budget, then make sure to stick to it if you want to control your business costs.
3. Create a Cost-Cutting Plan
By now, you will have decided where to cut costs and by how much, if your business is to operate on a better footing. Stay focused on your objectives and set clear targets; then you will be able to easily judge the success of your cost-cutting plan. To prevent any inefficient processes from creeping back in, make sure to regularly review your costs. Working closely with your accounting software can be a great way to stay on top of your business finances, as it can really help to minimise costs and run your business more efficiently. Check out our webinar on practical planning for SMEs to learn more.
Tips on How to Cut Costs
1. Aim for Zero Cost
Try to get as much as possible for free. Get office furniture for free by picking it from freecycling websites or looking for free listings on Facebook Marketplace. Take a look around online to find free versions of software, that you would normally have to pay for. Contact big companies you work with and ask if they could sponsor your activities by providing goods in return for promotion from you.
2. Outsource Where Possible
Every staff member comes at a high cost, no matter what their actual salary is. Using freelancers and outside companies for functions such as IT, publicity, accountancy, and even administration where possible is a great idea. It could be worth considering hiring a ‘virtual assistant’ who can help with admin tasks at a relatively low cost.
3. Consider Remote Working
On a similar note, it could be worth looking into ditching the office and working from home instead. You can keep in contact with team members through Skype, email, and instant messaging. You could occasionally hire an office for a few days by using a temporary office rental company. If you’re considering moving to home working, check out our guide on this topic.
4. Keep an Eye on Money
You don’t have to be your own bookkeeper, but you need to be aware of what money is coming in and out. Make sure to question all spending and ask team members to question business spending even further.
5. Shop Around
Shopping around for a cheaper version of everything at least once a year is a great way to keep costs down. Look into swapping your phone system to VoIP technology and use a comparison website to find the very cheapest deals for electricity and insurance. You could also clean the office yourself, which would cut the cost of cleaners. Whatever you spend, try and get it for less!
And that’s it! We hope you have picked up some valuable tips on how to cut costs and that they will be useful for your business.
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