The Forum’s latest Cost of Doing Business report, released at the beginning of this month, showed that while annual inflation has continued to fall from 2.7 per cent to 1.6 per cent prices have continued to rise faster for micro, small and medium-sized employers at 4.7 per cent. Energy, marketing and staff topped the list as having the most significant impact on cost rises.
The research also revealed that a staggering 63 per cent of businesses have seen costs grow in the last 12 months, and for 51 per cent this meant that they couldn’t grow their business in the way they wanted to.
Rising business costs undoubtedly squeeze small firms’ profit margins and mean there’s less cash available to spend on the growth and development that is so essential as the recovery continues to gather pace.
So how can you combat rising costs, whilst still managing to grow your profits?
When you think of business growth, cutting your costs isn’t the first tactic that springs to mind. It’s all too easy to focus on the ‘sexier’ sides of the business such as sales and marketing, but business costs in essence are just the other side of the same coin.
Every pound saved that goes straight to your bottom line, and, unlike a sale worth the same amount, incurs no additional costs.
So if you’re looking to grow cost cutting is actually one area where you can make a big impact, quickly, and here are some tips to help get you started.
1. Get back to basics
All too often it can be tempting to jump in and start cutting costs. But let’s start with revisiting your business plan. What are your business goals? What key business functions do you need to maintain to achieve them? Is your cash flow healthy? Do you know where your profits come from and which your most important supply chains are?
2. Know your costs and contracts
You should always know how much you have going out, as well as coming in. Assess your costs and identify where you can make savings. If you don’t know where to start, there are specialists who can do this for you.
3. Look for efficiency savings
Once you know where you’re spending most of your resources, pay close attention to these areas. Are they essential purchases and activities or somewhere you’re wasting time and money? Are you getting good return on investment? Do you have a lot of wastage?
4. Shop around for the best deals
There are good deals to be had out there, if you know where to look. Knowing your contract renewal dates is key, as this may dictate when you can switch supplier. Save yourself time and get increased buying power by joining a buying group and use brokers to help you get the best deal.
5. Stress test your business
Costs rise every year so you need to plan for what you’ll do when prices rise again. For example, new pensions regulations will see the cost of employment increase in the next few years and a rise in interest rates will see the cost of borrowing go up from next year. Take advice and plan early.
6. Tighten up your credit control procedures
Cash is king in any business, so making sure you’re paid on time is key to success.
7. Explore alternative sources of finance
Confidence in banks to lend to small firms may be at an all time low, but there are alternatives out there to get the funding you need to grow. From invoice finance, peer-to-peer lending and angel investment, there is a type of finance for every stage of business.
Don’t forget that business organisations such as the Forum are also a great source of advice and information on how to cut costs and keep cash flowing. The Forum’s website is also an invaluable source of money saving tips and ideas on everything from telecoms to utilities.