There’s no doubt that in today’s business climate, which is often characterised by tougher competition and tighter margins, SMEs have to keep a firm eye on their costs as well as chasing growth.
Of course, the difference between larger and smaller companies when it comes to cost control, is a larger firm’s ability to absorb the impact of high costs. But looking at costs in more detail can highlight several areas where small companies are saving thousands of pounds per year for relatively little effort.
However, forget about finding one single direct cost that will radically change the cost structure of your company. If such a cost exists you would have likely dealt with this long ago and probably have it under control due to the recent economic environment. Instead, consider;
1. Parcel Delivery
For many companies, logistics (a term for getting your products from A to B) costs have ranged from 4 percent to over 30 percent of sales and these costs, substantial for most SMEs, rank second only to the cost of goods sold (purchase costs) that are about 50 percent to 60 percent of sales for the average manufacturing firm within the UK.
But logistics is about creating value – value for customers and suppliers of the company, and value for the businesses stakeholders. Value in logistics is primarily expressed in terms of time and place. Products and services have no value unless they are in the possession of the customers when (time) and where (place) they wish to consume/ use them. Good logistics management views each activity in the supply chain as contributing to the process of adding value. If little value can be added, it is questionable whether the activity should exist.
As a business owner we highly recommend you put a monetary value on your time. Hours spent ringing around and logging on to different systems for quotes may save you a few pounds here and there but you’ll have wasted valuable time where you could have been making money. And the same applies if your staff do the ringing around.
Michael O’Grady at Business Cost Saving explained, “The right delivery company for the type of products you send out (as well as their destination) can be the difference between getting good rates and bad rates. It can also mean fewer damages and losses too. You can reduce the risk of loss or damage to your packages by using the correct grade of packaging for the product (redesigning your product packaging to come in under a certain weight break may also be appropriate) and by using a computer generated shipping label instead of manual one. But things can still go wrong so make sure you’ve got goods in transit insurance; not through the carrier but your own (which will work out much cheaper).”
“No one carrier will fit the bill all of the time so you may want to use a third party that allows you to use a range of carriers whilst not diluting your ability to secure good rates based on the amount you ship. This also gives you back-ups during peaks in the transit networks (such as at Christmas).”
“Finally, don’t baulk at paying the money for a premium carrier that will satisfy your customers when a cheap carrier may let your customer down. And with that……. your reputation diminishes too. If you think your product is a quality one then sometimes you need to invest a few pence more in making sure it turns up on time and in good condition. Cheap isn’t always the best and it doesn’t always save you the most money when it comes to whether or not a customer makes repeat orders.”
2. Save Energy
The main problem with your business energy is that whilst nearly all workers (92%) are concerned by the cost of energy in their home, less than half (47%) think about their employer’s bills in the same way. Although, the majority of workers surveyed say they would do more to help if their actions were recognised.
Have a policy of switching lights off in empty rooms or invest in motion sensor lighting for corridors and washrooms etc. This alone can save you up to 15% on your energy bill and of course, utilise natural light wherever possible (turn your office lights off now; it’s probably not too dark). You can also upgrade lighting to energy efficient bulbs and ideally LEDs (they require an initial outlay but will more than pay back that investment in future savings). Upgrading to a smart meter can be beneficial to some but you’ll need to speak with an impartial company first to ascertain whether it’s the right step for your business. If it is, then you’ll only pay for how much energy used as opposed to estimated usage.
Don’t heat empty rooms. Workshops where there’s physical work carried out can be set to either lower temperatures or no heat, as can warehouses, storerooms or corridors. You can reduce the thermostat temperature by 1⁰C. As a general rule, costs are increased by 8% – 10% for every ⁰C. And don’t have windows or doors open while the heating (or air-con) is on. If staff are too warm turn the thermostat down.
Turn off any equipment that will not be used for long periods of time and make sure all non-necessary equipment is turned off over night and at weekends. i.e. printers, computers etc. Also, regular maintenance and service of all energy consuming equipment and heating systems can ensure they run as efficiently as possible. And finally, when buying new equipment, check its energy consumption. Often buying something cheap can be a false economy in the long term when running costs are taken into account.
Gemma Sandy of Business Cost Saving explained that, “Many SMEs are tempted by discounted or cheap shredders, monitors and printers but don’t realise that the overall running costs can often be quite high”
“Businesses need look at features such as low energy consumption in standby mode and automatic sleep mode, as these will help run an energy-efficient office and save the most money in the long term.”
3. Cease buying! (briefly at least)
At every level of business there are normally accounts with suppliers that staff turn to without thinking too much about the cost.
Many people only focus on “large” spending and predominantly direct costs, the type with lots of £000’s at the end and the smaller bills are seen as not worth bothering with. However, in most companies, indirect goods/services and other smaller “sundry” costs account for over 50% of expenditure. For example, stationery or janitorial supplies are everyday “small” costs, but due to their regularity they add up to a significant amount. This is where an expert eye analysing your purchase ledger can identify areas of “small” costs that when consolidated can yield substantial benefits to your business, areas you may not have even considered.
A typically over-used account is the stationery and business supplies provider according to Business Cost Saving. “We’ve got quite a few clients now that ban stationery purchases for 3 to 4 weeks per year, giving a saving of around 8-9%. It doesn’t cause a problem as staff always seem to find good amounts in their desk drawers and cabinets.”
4. Outsource bad payers
Bad debt is a huge issue for companies of any size. Not only does it take up staff time in chasing unpaid bills but it can cause businesses to incur interest charges for dipping into overdraft facilities and so can have a knock-on effect on their credit rating too.
It goes without saying that all companies should do due diligence on any new customer, but no matter how careful a business is, unpaid bills are likely to be a problem from time to time. So The majority of commercial companies have some late or bad debt unfortunately.
Outsourcing to a debt recovery company may ensure prompt debt collection, which reduces your trade debt, improves your cash flow and lets you get on with your business. Many will also provide their service for free for all your Business-to-Business debts (costs are often added onto a debtor’s invoice as covered by the European Directive 2011/7/EU) meaning that no matter what the debt is, they only get paid when you get paid.
But simple and easy to do steps can help save your firm major headaches in the future. Have a clear set of terms and conditions. This looks professional and makes it considerably easier to chase debtors. Remember to include a clause stating that you continue to own the goods until they have been paid for and one requiring customers to draw your attention to any issues or problems immediately. You can also set credit limits based on a prospect’s credit rating before supplying your product or service which can avoid a lot of problems as does setting lower credit limits for new customers.
Agree up-front what you will provide and when. Require this to be confirmed in writing (both email and letter are acceptable). Always double check if you need a purchase order number for your invoice and find out who it needs to go to (the buyer or accounts). Always invoice promptly including all the details needed for the customer (e.g. purchase order, addresses, your bank details for payment, what was delivered etc.). It is worth finding out if the accounts department need the invoice by a certain date to make the weekly or monthly payment run.
You should always deal with any disputes quickly. Companies will not even look at paying you until any disputes have been resolved. Have, communicate and execute a clear credit control policy and this should cover in detail the earlier steps and includes what happens if the payment is late. Your first step should always be to call the buyer to find out what is happening. Your policy must cover what to do if the response is a clear warning signal such as “We have a cash flow issue.”
And finally, know when to pass the account to a professional debt collection agency. If you do reach this stage then they can professionally and efficiently collect all of your late business-to-business debts (often for free as costs are added onto your debtor’s invoice as covered by The Late Payment of Commercial Debts Regulations 2013).
5. Outsource in General
We have a mantra at Business Cost Saving; If it makes you money keep it in house, if it costs you money……. outsource! Outsourcing needn’t be something to be mistrustful of or even costly. The majority of us already outsource in some way – accountants, solicitors or contract cleaners.
Outsourced specialists can offer a massive opportunity for a business to utilise a specific area of expertise that is not needed in a typical businesses day to day running. This could include such areas as water audits for any industry that utilises water as part of the process or recycles it in some way. Enhancing your foreign currency rate while reducing the risk of unfavourable fluctuations. Or rent restructuring or reviews (again, this is a huge cost saving area, mainly due to the property market slump.
Through outsourcing non-core, time consuming & non-profit making functions you will find more time to focus on the aspects that will make you money. Outsourcing will not only realise a direct saving, but also free up valuable hours for you and your team to fully focus attention on the more profitable money making aspects of the business.
Michael commented, “A fresh pair of eyes can often work wonders in realising not only additional areas of potential profit but also areas where impartiality is not being used. Time and time again we come across businesses that have used the same broker for years, they play golf with them or maybe have the odd drink…. but their premiums are still rising every year. But it’s Bob! He’ll always do the best for me, won’t he? Allowing personal relationships to get in the way of what is best for the business can never work. Relationships are important, but you need to keep in mind the reasons for the connection in the first place; the service to you, the client, and what is right for your business.”
Access to Greater Choice – With any form of purchase, of products or service, knowing you have the best option for your means not only knowing the market but also knowing the choices available via different suppliers. Let’s be honest who has time to contact every company for an in-depth conversation about all options? Not many. Experts in their field are just that; experts. They have the contacts, knowledge and ability to provide you with options and source the right product for your individual needs.
Gemma explained, “Contrary to popular belief, outsourcing or using an intermediary can provide better pricing and is often better than going direct or keeping things in house. The reason being; purchasing power. Often they will already be placing a significant amount of business to achieve better pricing than an individual will receive on their own, all due to the amount of spend. Access to “wholesale” pricing is one area where even if you have already cut costs, you may still benefit from better “purchasing power”.”
Gemma Sandy, Business Cost Saving
Business Cost Saving have a wealth of experience and knowledge to help you realise greater efficiencies within a business (even if you already control costs). Their service is a no-cost offering (they take their payment from the supply chain) and they cover Logistics and Delivery services, Energy, Water, Insurance, Telecoms, Finance, Property, Business Supplies and Debt Recovery. To find out more visit www.businesscostsaving.co.uk or call 01226 611511