A SMEs guide to cutting business costs

Where could your business be saving money?

Why would you need a SMEs guide to cutting business costs? Seeking growth and lowering company expenditure costs are two interrelated shutterstock_126022019goals that directors should strive to achieve if they harbour any genuine ambitions of being a success, and it is often the case that the former is made much easier by taking basic steps to reduce the latter.The reality is that the more money that a business saves each year on areas such as energy, postage, staff and basic supplies, the greater the level of finance they have available for more significant areas of trading.

Moreover, any company can achieve this reduction in basic expenditure by simply applying themselves more proactively, comparing online for the cheapest deal, instigating purchase breaks and optimising their debt collection practice.

Below is a guide on 5 top measures that a company director can undertake in order to reduce their businesses spend, so that they can then allocate their time and money to more alluring and rewarding areas of business such as asset purchasing, floating and general expansion.

  1. Reduce employee costs 

Having a solid core group of employees who are highly skilled and are kept content by an attractive wage packet is a reality that any businessperson should seek to achieve if they desire to run a successful business. However, having a large quantity of employees who range in ability, fill out superfluous jobs, and still receive an attractive wage is not. One of the great trials that the modern director faces is finding the balance between a motivated staff base and a fair wage for all, with this problem being substantiated in recent times with the creation of a number of superfluous jobs that are simply an unnecessary addition to the company’s expenditure.

As such, it is advised that the number of low skilled workers- such as a secretary, bookkeeper or someone working with data input- is kept to a minimum. This can be achieved by either encouraging your highly skilled staff to function in a dual role with less demanding tasks such as the above, or simply recruiting temporary members of staff to infill in order to meet short term need. You could incentivise the task of a highly skilled employee performing tasks such as bookkeeping or social media management by offering them a higher wage, which will incur the dual benefit of heightening employee motivation whilst also preventing the need to hire a new employee. Furthermore, hiring recruits on a short term basis to fulfil low skilled jobs will mean that you have a higher degree of control over your cash flow situation, and can raise your wage bill when you really need it whilst keeping it down at all other times.

Another great way of keeping employee costs to a minimum is by adopting a DIY approach to business. This means that instead of utilising a P.A or travel department agency to organise your schedule and your travel arrangements, do it yourself. This could save you thousands across the year by simply necessitating that you perform simple tasks that you would have to pay someone else such as a P.A thousands each year to do.
When a member of staff at your business announces that they are leaving, do not immediately move to find a replacement. The opening stages of the year are often used by businesses as a time to find new talent, or replace outgoing members of staff who are looking for a fresh start. This can often be a time consuming process that requires yourself or your members of staff to devote hours of the day to interviewing, reviewing and making decisions on who should be hired. However, you can use the departure of your employees as an opportunity to bolster motivation within your outstanding workforce and cut down your wage bill. If you are aware that you have ambitious members of staff, then present the new opening as an opportunity for them to play a more prominent role in the company. Suggest a higher wage that is still lower than the costs of hiring a replacement employee, and capitalise on their ambition. This will benefit the levels of motivation within your workforce whilst also preventing the need to hire a new member of staff.

2. Be energy efficient 

A study conducted by the Carbon Trust at the end of last year compellingly found that UK business could save a monumental £300 million each year by being more efficient with their energy usage. The study also revealed that whilst 92% of employees are concerned about their own household’s energy costs, that just 47% are concerned about their employers. This is despite the fact that the majority of those surveyed identified that they would be more vigilant with their energy usage at work if their employer specified that they should so.

As such, being proactive and outlining a clear company policy toward energy usage would be beneficial to brining down your yearly energy costs, which can often form a large percentage of annual total spend. Necessitate that all employees must shut down their computers when they leave, and apply the same principles toward heating as well. Being clear about your stance toward energy usage will go a long way to encouraging your employees to be conscious about their own usage, and this will have the long term effect of bringing your expenditure down.

Investing in LED lights might necessitate a relatively high initial outlay, but will certainly provide a high return on investment, particularly if you are aware that you are a frequently negligent about turning lights off. This is because the energy costs for lighting such as these are supremely low, and can compensate for higher energy usage. Ensuring that you have lighting systems placed in alternate areas of your office which can be lit separately when required is also an excellent measure to undertake in order to ensure that you do not overspend on lighting you are not using.

The final step you can take in order to bring energy costs down is comparing online to find the cheapest tariff in your area. In recent times a number of smaller energy providers have begun capitalising on the increased level of competition in the energy market and as such have been given a greater level of exposure on comparison sites. These smaller suppliers are often cheaper than the country ‘big six’, and switching to one of them for your gas and electricity provisions could ensure that you make a substantial saving on how much you pay on your energy bill each year.

3. Reduce annual postage costs

Ben Wilson, managing director of electronic cigarette company Freshcig, recently pointed out that a number of businesses unwittingly spend a huge amount of money each year on postage costs. According to Wilson, this can often be as high as £3000 each month, and can be avoided by simply using ‘large letters’ from the post office instead of sending packets.

“I was doing a review of our finances and the one bill that stood out seemed to be postage at around £3,400 a month, it really surprised me and seemed huge in comparison to all of our other outgoings,” Wilson outlined.
“It only takes a quick look online in your Royal Mail business account to see that it is around 85p for large letter and £2.93 for a packet. So I decided to redesign our product packaging to fit Royal Mail’s large letter measurements, a saving of £2.08 per item.

“We now save £1,700 monthly, which covers our office rent, a company car and the electricity and internet bill for the business for two months.”.

Incorporating this measure into your business expenditure is an easy way to bring it down, so it is worthwhile looking into your company’s current postal practice in order to ascertain whether you need to improve it or not.

Written By: Mike Smith

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