Cutting costs can help turn your business into a lean, mean, competitive machine. You'll need to balance immediate needs with long-term objectives, making sure your business can both meet day-to-day obligations and gear up for future success.
Identifying where to cut and where to invest will involve several stages of analysis, but with a clear process in place, it becomes far less complex and far more effective. So, here’s our guide to cost cutting for businesses like yours.
Rank your costs
Start by looking at your finances to figure out where most of your costs lie. It will help identify savings, but also improve your ongoing financial management.
Look over your profit and loss statements, and then delve deeper into your outgoings and expenses to identify where your biggest spends are.
Compare with your projections
Once you have a clear view of your biggest expenses, see how they measure up against what you planned for in your cash-flow projections. The aim is to find anything you didn't realise would cost so much and work out what caused the extra spending.
From this, you can reassess which costs are really essential and update your cash flow projections accordingly, before moving on to find the most effective ways to cut the least essential costs.
Research potential savings
Look for examples of the following in each of your costly areas:
- New technology – whether it's cutting accounting costs with free accounting software or using time more efficiently with project management or CMS programmes, look into all avenues for ideas.
- Cheaper suppliers – talk to all of your suppliers and let them know you're assessing your options in order to renegotiate a deal. If that's not possible, consider your basic overheads. Get new quotes for phone, internet, gas and electricity costs.
- Efficiency savings – is everyone's time being used effectively? Wasted time is wasted money.
- Extra capacity – if you can't cut hours or overheads, you could look into ways to earn more money to cover the costs. Consider renting out spare office space or adding extra services.
There's always a way to reduce your business costs and a few small changes can make a big difference.
Connect with long-term goals
Once you have a list of potential savings, identify which ones tally with your long-term business goals. The idea is to spend time on the areas that are most important to your continued success, and avoid panic cuts that might come back to haunt you later.
Start by revisiting your business plan. If it's been a while since you updated it, consider running a SWOT analysis to remind yourself of the key threats and opportunities facing your business before making any big decisions.
Next, identify the cuts that will help you achieve those objectives, whether that means focusing on specific services or adapting to changes in the market.
Finally, list the efficiency savings that you can implement with no impact on long-term business goals. You may find some are no longer relevant once you focus on your real goals. Others will be no-brainers that you can implement immediately.
Once all this is completed, build yourself a realistic timeline, assign responsibility for each objective to someone in your business and begin the process.
If you're a tradesman, it's likely that a sizeable portion of your day is spent driving between jobs in your van. And although prices have seen a steep drop in recent months, the cost of fuel can still put a dent in your profit margins.
However, there are now green motoring schemes springing up across the UK that could help you to cut down your travel costs – here's a quick overview of some schemes you might consider.
Local grants and schemes
With councils, central government and public-private partnerships all looking at ways to encourage green motoring and build eco-industries, local grants and subsidies are appearing across the country. A prime example is the nearly £5 billion in funding available to help UK businesses become greener as part of the government’s commitment to reach net zero emissions by 2050. The application process for government grants can be intense, but can be really worthwhile if it opens up a new funding avenue for your business.
Even outside of green and eco-friendly initiatives, there are plenty of other ways to find funding for your small business. You'll likely want to exhaust all of those avenues for generating cash flow before cutting any costs that are essential to your business.
Improving driving habits
Even if you’re not ready to start driving an electric vehicle just yet, there are still eco-initiatives that could save you money. Eco-Business Driving, for example, aims to help businesses save money by teaching driving and maintenance techniques that can cut fuel and service costs. Construction and infrastructure business Amey is one organisation that has taken advantage of the scheme, and it reports fuel savings of between 10 and 15%.
Durham County Council reports even higher savings, with 400 individuals who have taken part in their council-led driver training scheme making an average saving of 17% on fuel costs.
It’s not just about tips to reduce the strain on your engine (and your carbon footprint), though. As eco-safe driving is all about maintaining a steady speed, avoiding harsh acceleration and braking, and planning and anticipating early, it can also help to prevent accidents – avoiding claims on your van insurance, as well as incidental costs like lost productivity, extra management time, and staff absence.
Cutting is probably the least enjoyable part of owning a small business, but it’s an important part of making sure your business is responsibly run and optimised for success.
All links are checked and valid at time of publishing, 29 September 2022.
