I've already got my costs down, now what? 9 tips to success
You've run a successful business for some time now; you run a tight ship and reduced your main costs as much as possible, all's good isn't it? What would you say if perhaps, without you knowing, you're leaving money on the table? Firstly ask yourself a question "What would I do with an untapped resource of additional profit?
- Ease cashflow?
- Make your product/services more competitive for your customers?
- Increase shareholder dividends?
- Ultimately could you increase your company's value?
But you're already on the ball and have reduced costs.....
Everyone needs to maximise their profitability in order to have a sustainable business that can offer security and also provide a certain quality of life for the stakeholders. Achieving this through growth should always be preferred method but in an already highly competitive market place profit margins have been eroded due to cheap foreign imports, continued financial instability in key trading partners abroad and a more price conscious consumer. This is where cost management is a tool that can offer valuable support to an already soundly run business. Some think once they have "screwed" their supplier's prices down for the usual utilities and telecoms etc. they have done everything they need to do and nothing else can be achieved. This is often not case.
The key to ascertaining if there is additional untapped resource within your business is to keep an open mind and to consider a couple of points:
First, 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 (there are exceptions to this rule which we will cover later) due to the recent economic environment. Second, Time is not money; it's more important than that!
Instead, a more holistic approach to your company's overheads will normally find that there is the potential to drive further efficiencies, often by as much as 10-50%. Often either overlooked costs or overheads that you have not previously considered can provide the answer.
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.
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 the brewing industry or any other 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.
- But for a great number of businesses an area where utilising a specialist could make a real impact is in the form of rent restructure or review. The majority of businesses have an upwards only lease agreement so you will likely have seen either an increase in your rent or at best it may have stayed the same, the property market, however has seen a slump, leaving many of us being "over rented".
A specialist can act on your behalf in various sectors in order to achieve a very specific goal which due to that industry specific expertise and knowledge they hold is often not available to the average business owner.
As outlined in one of our previous blogs (The ultimate guide and 10 tips on brilliant Time Management ), as a business owner we highly recommend you put a monetary value on your time. Recently we spoke to a client who saw little benefit of reviewing his energy spend as the hours of comparing suppliers, speaking to call centres, reading terms & conditions and chasing the best price would only realise him a saving of £80 per year. However in half an hour of running his business he could easily make sales of approximately £150, therefore it was uneconomical for him to look at his energy costs.
This also needs to be applied to travel. If you regularly travel to meetings critically evaluate if the time taken is financially viable. If not, utilise other means of holding the meeting such as conference calls or online packages offer cost effective and time efficient alternatives to travelling miles and taking hours of productivity out of the working day.
Ultimately, think, is a task stopping you from making money. As a business owner you could probably do the majority of jobs within your business even sweep the floor but is this effective use of your time? Many feel that they are the only person who can do the work efficiently and want control over everything, but if you want the business to grow sometimes you have to let go and start delegating.
To take our clients example above would you prefer to save £80 per year or make £2,400 per day?
But what if you could have both.......
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. Our mantra at Procuright is simple:
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. Other benefits include:
4. Objective Purchasing
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 again we come across businesses that have used the same insurance 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.
5. Easy Procurement
Outsourcing offers the client a simple, effective and pro-active service. It also takes away a burden, shares the cost and reassures with a human service that works for the needs of the business.
6. Purchasing Expertise
All industries have pitfalls that can cause a great deal of difficulties for uninitiated. We've all heard horror stories of costly mistakes that come with cast iron 5 year contacts or 20 year leases and bills of tens of thousands of pounds. As business owners we must remember that although there are laws protecting private individuals against bad practice and mistakes it believes that businesses are big enough to look after themselves. Utilising industry knowledge and advice that is based on years of experience and practical application is invaluable.
7. Access to Greater Choice
With any form of purchase, of products or service, knowing you have the best option for you 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.
8. Reduced Risk in Procurement
Expertise and industry knowledge coupled with an understanding of the client's requirements will considerably reduce the risk to the client in terms of choosing a wholly inappropriate service or product that will be detrimental or costly to their business. You will also have the added peace of mind that they should hold some form of either qualification or professional indemnity insurance or both.
9. Greater Purchasing Power
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".
Apart from these few examples there is a wealth of other areas and practices where you can realise greater efficiencies within a business even if you already control costs. You can make these savings through a combination of supplier sourcing, outsourcing, tighter management, time/productivity management, supplier optimisation and purchasing power. The end game for any business is profit. Without it you cannot survive but the beginning however, is openness and willingness to look at the bigger picture to maximise your businesses potential and worth.
"A more holistic approach to your company's overheads will normally find that there is the potential to drive further efficiencies, often by as much as 10-50%"