Seven steps to cut costs
The goal of every business is to make a profit. Unfortunately, with rising costs, business owners are facing a difficult choice: raise prices or lose margin.
However, there are other options businesses can consider doing before they become more expensive or start chipping away at the margin. If you can find more efficient ways to run your business, you’ll be more competitive in the long run.
Need some ideas of how to get started? Read on!
Time is money
Producing something faster usually means you can produce them more cheaply. Whether you are offering a product or a service, think about how you can reduce the time it takes to do the work. Remember you are multiplying across how many people are doing the task.
Take a good look at your processes: anything you do at work. If there are bottlenecks, look at how you can reduce them. It can be worth doing a full cost/benefit analysis of these: new equipment will have a cost attached to it, but if the resulting efficiency means the job is done faster, it will pay for itself.
Getting a handle on time could mean you no longer have to ask people to work extra hours, or you could save yourself from hiring extra staff.
Power down your spending
Energy is a major cost for many businesses. With prices on the rise all over the world, it may be difficult to find a new supplier.
Self generating power may be the answer: can you invest in solar panels? There is an upfront cost, but effectively once they have paid for themselves, the energy they produce is free. If you have assumptions about how long it will take to recoup the cost of installation, check again because prices are falling all the time.
There may also be local grants for investing in renewables. Check Swoop’s grant finder tool to see what help is available.
Haggle with suppliers
Some business owners love to play hardball, others less so.
If you don’t like haggling, don’t give up: you don’t have to be hard headed to get a better deal. Find out if there are ways to get a discount by buying in bulk. Rather than asking for a reduction, see if your supplier can add more value. And if all else fails, ask a question: “Is this the best deal you can give me?“ It’s a great phrase, it’s not confrontational and it puts the onus on them to sweeten the deal.
With costs rising and interest rates going up, you should consider locking-in the price right now as being a “win”.
Rhys Cunnah, Head of Asset Finance at Swoop says that businesses do well when they use economies of scale to drive a bargain: “Buying in bulk often means that you offset the cost of borrowing money to cover a large order. If you get a Merchant Cash Advance (MCA), you only repay the borrowing – at an agreed rate – when you sell to your customer.”
Find our more about MCAs here.
Slash costs (carefully)
It is important to cut costs, but not at the expense of safety, or anything that the customer values.
One way of reducing cost is to identify where you’re spending more than you have to. There is a story about Henry Ford who told his engineers to go out and search scrapheaps for broken down cars to find out what went wrong. The engineers came back and announced they had found one part of the car that never ever broke down. “How much does it cost to make that component?“ Asked Ford. The engineers told him the number. “Halve it,“ said Ford.
Look at where you are spending money and ask yourself if it is giving you enough value for what you spend on it.
The aim of any cost-cutting exercise should not be to demoralise staff: you’re getting the best value out of them and their work and giving them the best and most efficient tools for the job. While the emphasis will be on justifying spending, you should make time to value and appreciate what you are spending on your business.
You should also decide on whether you’re looking for short term cuts or long term efficiencies. For example, renting a property can be the right option if you plan to grow fast and move soon. In the long term, it could be more cost effective to buy your premises: not only are the monthly costs lower, you will have an asset for the business at the end of the mortgage.
Don’t assume that purchasing a property is beyond your capability: this article explains how to get on the commercial mortgage ladder.
Manage your staff
Staff costs are a major consideration for many employers. They are also a responsibility: while other businesses may be able to negotiate around a late payment, the people who work for you need to be paid on time.
Reducing staff numbers is always difficult and it is something that every business has to work out for itself. One thing you need to ensure is that you do not allow the staff you have retained to feel that they should be looking elsewhere for work: retaining good staff will cost you money, but not as much as replacing them.
Tackling costs through looking at your wages bill is absolutely necessary, but you need to beware the consequences of letting people go.
Find a technology solution
Technology solutions can often be used to reduce costs. For example, if a process carried out by a person can be given to a computer which can work 24/7, you’ll save money. No need to worry about lunch breaks.
If you have tasks that need to be carried out repetitively, such as inputting data, getting a computer to do it will drive efficiency.
There are thousands of processes with a technology solution, from invoicing to expenses, onboarding customers to answering queries.
As with any cost saving exercise, identify the solutions that will add the most value to your business and investigate them further.
The government has pledged to help SMEs find technology solutions by widening the criteria for their “Help to Grow: Digital Scheme”. Read more here.
Outsource
If you own the complete value chain from end to end, you can find efficiencies all the way through – but it is hard work and may distract you from where your focus should be. If you outsource a particular task, you can get more for your money and have a better idea of what it will cost you from month to month.
Outsourcing also means that you don’t have to worry about operations, staff or supply chain: you are in an agreement with a company specialising in what you want and only pay for what you need.
Outsourcing can be a good way to keep a tab on costs so that you are not overspending.
Conclusion
There are plenty of ways for businesses to reduce their costs without the customer feeling it has negatively impacted them.
The major approaches are:
- Get better deals for anything you have to buy – whether that is raw materials, labour or energy.
- Don’t spend more than you have to – identify where cost can be driven down and where you are getting the most bang for your buck.
- Send the work elsewhere – if there’s a technology solution, or a service provider, you may find that they are able to give you an efficient solution for a problem rather than you solving it yourself.
Sometimes you have to invest to save money. Swoop can help you find the funding you need to build a more efficient business. If you have a project that you would like to invest in, get in touch with Swoop today via your Chamber Finance Finder.
© Cumbria Chamber of Commerce