Businesses have been facing rising costs for several years, with regards to raw materials, energy and transportation, but in recent months costs have increased to unmanageable levels for some, leaving them struggling to make a profit. The Covid-19 pandemic added additional pressure to already-struggling businesses and has heightened the importance of keeping costs aligned to protect organisations from other unforeseen circumstances that might arise. Within this blog post we’ll look at some ways you can control business costs.
Review your current costs
The first, and most important step, is to assess all your costs which includes premises, stock, insurance, wages and utilities. Outline all costs clearly on a spreadsheet so you can see which costs are the most expensive and compare your costs to the previous 12 months to give you an idea of what has increased or decreased; this can help identify whether costs in general have fluctuated or if your spending habits have changed.
Speak to your suppliers
Have you been with the same suppliers for years? It may be time to review other options because you may be paying over the odds without realising it. You shouldn’t be afraid to negotiate better deals with suppliers either – the Centre for Economics and Business Research claims business owners could boost profits by 7% by negotiating better deals.
Manage customer debt
If you are owed payments by numerous customers, then it will have a negative impact on your cash flow and your outgoing costs will be affected as a result. Ideally you will have a clear credit control processes in place to manage customer debt, but you may benefit from a credit management system if you deal with lots of customer payments at once as it will quickly highlight in real-time where payments are owed to help improve cashflow bottlenecks.
One of the reasons that businesses have jumped on board with remote working is the opportunity to reduce overhead costs. In fact, insurance company Aviva, closed multiple offices in a bid to reduce costs after realising the benefits of flexible working during the Covid-19 pandemic. Other ways you can manage overheads is to look at energy efficient heating and implementing simple changes such as reducing heating, turning off lights and PC monitors and swapping lightbulbs with energy efficient alternatives. Energy firm EDF claim businesses could save up to 10% of their overhead costs a year by implementing simple measures like these, and turning off a PC monitor overnight can save £35 per monitor annually.
There is a notion that technology eliminates jobs but when implemented appropriately, technology can streamline and automate a lot of labour intensive and manual roles which can free up employee time to be used elsewhere in the business, thus reducing labour costs.
Forecasting your incomings and outgoings for the 12 months ahead will help you identify how much money you need for your business to function and whether some further cost cutting is needed.
It is essential to use a degree of caution when cutting costs because reducing costs too severely could cause adverse problems and put your business into a weaker position. For example, you could see your product or service quality decline or a reduction in staff morale. Evaluating all your costs and comparing to the previous 12 months is the most important first step before taking any drastic action, however simple steps like switching lights and monitors off can easily be adopted without too much difficulty.
For more information on reducing business costs or implementing software to help you achieve greater business visibility, please contact us today.