Small business owners should always be on the lookout for ways to reduce their expenditure and boost profitability. In today’s economic climate this is growing ever more important. Making small changes to cut your business costs can also help prevent you having to make more severe cuts in the long run and helps you to protect your core business activities.
We have prepared a short guide explaining some simple techniques to help you to reduce your outlays:
Reduce Energy Consumption
Making simple changes to your energy consumption can make a big difference to your bills and educating your employees about reducing energy usage will also help to focus your business’ effort.
Turning off computers, printers and other electrical equipment at the end of the day is a great place to start, but also make sure to unplug mobile phone chargers as they use up a lot of electricity. Take advantage of power save features on your PCs and laptops and replace old monitors with flat screens to reduce energy and save desk space.
A great way to save costs in the long run is to replace light fittings and bulbs with modern compact fluorescent or LED fittings.
Ensuring that your business premises is properly insulated will help to save of heating and air conditioning bills. Cavity wall insulation and triple paned glass are a long-term solution here, but simple measures such as door sweeps and tinted window films can help to cut these costs in the short run.
Minimise fuel consumption by reducing your mileage and driving slower, satellite navigation can also assist with finding the most direct routes.
Switch to Email
With postage costs constantly rising, increasing numbers of organisations are going paperless. Not only do emails reduce postage and stationary costs, they are delivered instantly and are easy to file as they do not take up any physical space.
It is increasingly common that receipts, invoices, bills and other correspondence are sent via email and retrieving them is made easy via search functions, digital folders and mobile technology.
Work from Home
Advances in technology and a rise of internet based companies has contributed to a rise in homeworking and telecommuting in recent years and it is becoming increasingly common for people to spend at least some of their working week away from the traditional office-type environment.
Talk Business reports that 65% of UK companies now engage in some form of flexible working practice and the main reasons cited by business owners were ‘working more efficiently’ and ‘greater autonomy of staff’.
Moving out of your physical office space can also help to reduce your overheads and boost productivity. Alina Tugend of the New York Times reports that during four official snow days in Washington last year, federal employees who worked from home saved the government an estimated $32 million.
In her article, Tugend emphasises the importance of having effective communication and technology in place to maintain control, but goes on to report that those who work at home tend to put in longer hours and are often more productive.
Settle Invoices Early
Many suppliers offer incentives to clients for paying their invoices early, so if you are looking to reduce your costs, these discounts should be taken advantage of (provided of course that your cash flow situation permits).
It may be the case that you are able to negotiate bespoke discounts and improved rates from your suppliers by agreeing early settlement terms with them. This is a simple and cost effective way for your suppliers to improve their cash flow position, so could offer your business some valuable bargaining power.
It is equally important to collect monies owed to your business promptly and you can do this by offering similar incentives and acting quickly when a client misses a payment.
Reduce Business Travel Costs
An effective way to reduce your expenses is to cut down non-essential business trips that don’t generate any revenue for your business.
For all other essential business travel, make sure to plan your trips well in advance. Take time research the most cost effective means of getting to your destination and take advantage of early-bird booking rates on your travel and accommodation.
When assigning the costs of travel and accommodation to your business accounts, it is always tempting to opt for needlessly expensive options out of convenience, habit or general nonchalance. However, it always pays to shop around and the internet has made it easier to compare prices of travel and accommodation.
Group booking is another way to reduce the costs of business trips and travelling together can also help to cut out unnecessary expense.
Find Cheaper Premises
Depending on the commercial property market in your area, you may be able to take advantage of cheaper office space at another nearby premises, or negotiate better rates on your current space. It might be cheaper to relocate elsewhere, but the practicalities of this will vary from business to business.
Another option could be to downsize your commercial premises and encourage homeworking and telecommuting. Technological advances have made this feasible for many businesses and provided you maintain effective communication channels, it could even increase productivity.
Take Advantage of the Second-hand Market
Businesses are constantly changing; growing, downsizing, relocating, merging and liquidating, which means that office furniture and equipment is regularly upgraded, replaced or made redundant.
For this reason there is a huge second-hand market for office equipment and furniture, which makes it possible to find quality items at a fraction of retail prices.
Also, when it comes to replacing your own equipment, instead of paying someone to take it away, make sure to take advantage of its residual value by selling it either privately or to a specialist trader.
As fellow business owners, your suppliers will understand your needs to manage costs and as one of their valued and loyal customers, you may be able to negotiate a better deal than you’re currently getting. Entering into a longer-term agreement with a supplier may also help you to secure better rates.
When bargaining with other businesses offer goods and services instead of cash. This is often a more cost effective way of securing a better deal and helps to builds a relationship based on more than just money. This will also preserve your cash flow position.
Make sure to get comparative quotes from other firms periodically. This will give you better idea of how competitive your suppliers are and could highlight areas where prices can be negotiated.
Control your Stock
A clever way to reduce your overheads is to manage your inventory. By only keeping the materials and products in stock that you expect to use or sell, you can minimise your monthly outlay, reduce storage costs, free up space and minimise wastage.
If your business is affected by seasonal changes, ideal stock levels will fluctuate throughout the year, so it is important to monitor sales volumes throughout the year to ensure you maintain sufficient (but not excessive) levels of stock. If perishable, it is important to rotate your stock in order to avoid wastage.
Keeping levels to a minimum does however leave you with the possibility of running out in the event of an unexpected order, but to counter this you may be able to make arrangements with your suppliers.
Cut your Tax Bill
Another way to reduce your costs is to minimise expenditure that is not tax deductible. Under UK law, a business expense must be incurred necessarily and exclusively for your business for it to be tax deductible and for a brief guide of what you can claim please see our article – Business Expenses: What can I claim?
Amongst others, non-deductible expenses include start-up costs, personal use of company vehicles, the cost of entertaining clients, excessive travel expenses and transactions with related parties.
Audit Your Fixed Assets
Keeping an up-to-date inventory of your fixed assets can mean that you no longer have to pay taxes and insurance premiums for items you no longer own.
Marcus Scholes, vice-president of Real Asset Management International says in a Bloomberg Business Article “Although larger items such as buildings and manufacturing equipment are easy to keep track of, technology assets such as laptops, flat-screen monitors, printers, fax machines, and PDAs can easily get lost or forgotten.
He goes on to say "A company's fixed assets are often one of the biggest line items on its financials, but they are often haphazardly managed."……….“ In our experience, up to 20% of assets on companies' book are no longer in existence."
Performing an up-to-date and accurate audit of your assets can also prove useful in the event of an insurance claim, and keep can also assist with accounting strategy such as depreciating assets for tax purposes.
Arrange your Business Insurance Wisely
Some insurances, such as employers liability insurance are compulsory by law, but others are not. Consider what you are currently insuring and think about whether it might be cheaper to set some money aside and self-insure certain aspects of your business.
While it is very important to ensure that your business is adequately protected against unforeseen events, it is easy to end up paying over the odds for your business insurance. A great way around this is to use a broker like Be Wiser Business Insurance who can help you select from a number of leading providers to find the most suitable policies for your business at the best price.
Another advantage of using a broker is they can tailor cover to your needs and advise you on policies that can be of particular use to your business such as public liability insurance and business interruption insurance.
For further advice on arranging your business insurance or for a no-obligation quote call our expert team today on 0800 042 0401.