In demanding economic times, cost management is never far from the minds of many small business owners and just a few simple steps can help avoid wasting valuable profit. Here are six tips to both reduce costs and bring in additional income.
- Energy efficiency - according to a recent E.on survey, few SMEs take energy efficiency seriously. Have you reviewed your energy consumption lately? Turning off lights in unoccupied spaces, switching off unused office equipment and only using the heating when it is needed are just a few ways to save. These are just some of the simple things you can do to reduce costs but to make it work you need to get all your employees on board as each will have a part to play. Have you considered subletting parts of your premises that are unused to recoup energy costs through rental income?
- Recycling – this can be an effective way of improving business efficiency. Are you making the most of recycling in your business? Waste removal can be very expensive and there are restrictions on what you can send to landfill, with penalties levied if waste isn’t handled appropriately or for insufficient paperwork before it leaves your premises. Purchasing recycled products can also be more cost effective such as recycled paper, ink cartridges and printer toner.
- Waste – with the cost of goods and materials rising, using resources efficiently and reducing waste makes good financial sense. Can you adapt your production processes so they are more streamlined? Using fewer working hours or resources would save on energy and materials but also potentially on labour costs. Have you considered that your waste might well be someone else’s valued commodity? It is worth checking out some of the on-line tools available where you can realise the value of your waste by selling it.
- Suppliers - if you are not getting the best deals possible from your suppliers it might be time to shop around. Have you reviewed your suppliers lately? Negotiating better terms with existing suppliers or driving better deals by consolidating your supplier base can reduce expenditure. You could also look to buy on a 'just in time' basis to make more effective use of your working capital. I spoke earlier about energy consumption and with spiralling costs it is worth shopping around for the best energy deals and, where it makes sense to do so, take a fixed price option so you can protect yourself from possible further hikes.
- Cash flow - are you using any overdrafts effectively by keeping on top of cash flow? One of the best ways to do this is to ensure you get paid on time. Avoid possible disputes by discussing budget or estimated costs in advance along with the scope of your work and payment terms. Don’t be afraid to chase late payers and, to make life easier. Why not set up Direct Debits to collect payments?
- Finances - it is well worth reviewing your financial arrangements. Are you getting the most competitive terms available? It is always worth thinking ahead on any financial transactions to ensure you maximise tax benefits. There are a surprising number of ways to reduce tax that many people would know nothing about.
It is always worth taking advice and, in many cases, costly not to.
Chartered Accountant, Birmingham