|
To reduce business costs and operate more efficiently, you need to scrutinise your business and often make some tough decisions.
In today’s tight UK economy, any additional savings matter. Companies face increasing expenditures in various categories, such as rising salary costs, higher energy prices, delays in their supply chains, etc.
According to ONS survey results, as much as 29% of firms mentioned increased labour costs and 25% reported higher energy costs pushing them to raise prices. Cash flow also remains a problem, with Rise Funding reporting SMEs facing an average late payments debt of £22,000, and almost 90% of firms experiencing delayed customer payments by 2025. With profit margins of a typical small UK business averaging only 9%, even minor savings become important.
In this article, we outline some practical and systematic steps to reduce business costs and increase efficiency.
Key Takeaways
- Start with a full audit – Before cutting anything, map every fixed and variable cost. With average small business profit margins below 9%, understanding exactly where money is going is the foundation for every other saving.
- Attack the highest costs first – Labour, subscriptions, premises, and energy are the areas with the most room to move through cross-training staff, cancelling unused software, renegotiating supplier contracts, and switching to smarter energy tariffs.
- Cost-cutting only works alongside healthy cash flow – With SMEs carrying an average of £22,000 in late payment debt, chasing invoices, automating collections, and keeping a cash reserve are just as important as reducing outgoings.
Table of Contents
Undertake a thorough audit of all expenditures
First, make sure you understand where your money is flowing. Start by breaking down all fixed and variable costs, differentiating which expenses cannot be avoided (rents, salaries, insurances) and which vary depending on productivity (raw materials, utilities, commissions). You might use accounting software to track all the expenses on a regular basis – even creating simple tables on Excel will get the job done.
Having established which types of expenses take up most of the funds allows you to focus on optimising them. A completed audit makes budgeting and forecasting easier, too: once you know your average monthly expenditure on electricity or other utility fees, it becomes possible to decide on whether it’s worth implementing efficiency improvements. Analysing profit-and-loss statements and tracking your profit margins will also prove useful – remember that, on average, profit margins of small UK firms are less than 9%.
Renegotiate prices and contracts with suppliers and partners
Once you’ve done a detailed analysis, you can move on to negotiations with your suppliers. You may not have considered it, but suppliers will often give you discounts or special terms, especially if you are a loyal client – they’ll hopefully want to continue working with you for years to come. Consider buying in larger amounts to benefit from volume discounts or combining multiple contracts into one.
Don’t forget about suppliers for services like your internet, telephone or energy: check whether you have been offered the best prices and conditions, using sites like Compare the Market or uSwitch Business. Finally, renegotiate the payment deadlines or terms in your favour. Long-term price and term negotiations will allow you to decrease the repeated expenditures considerably.
Reduce your number of subscriptions
Today, it’s very easy for businesses to incur high subscription costs, particularly in software. Make sure to regularly audit your subscriptions, and cancel any unnecessary applications. Often, businesses subscribe to premium packages without actually needing to, where a simpler one would be sufficient. Try checking whether free software could substitute paid applications for your purposes.
If you use certain services that require monthly payments, consider changing the period for payment and switching to annual fees, which usually offer better savings. Finally, think about eliminating unnecessary hardware – is it really necessary to have separate printers for each department in your firm?
Simplify your staffing and outsource non-core operations
Salaries usually comprise the largest amount of business costs. That being said, you should make sure you are paying employees fairly for what they do. Cross-training your employees will allow you to employ fewer workers to perform the same quantity of work: people will be able to cope with multiple tasks instead of being limited to their primary work.
Hire temporary workers in case you need to handle peak demand periods instead of maintaining a large permanent workforce all year round. Outsourcing bookkeeping or other routine functions may be much cheaper than hiring someone specifically for this task. Flexible scheduling will also help you reduce the costs related to your workplace: people working remotely will not require office space and electricity, for example.
Optimise your premises and utilities
Some fixed costs, like rent and office overheads, can also be improved. Consider whether it makes sense to relocate your office to a location with lower commercial rates, sign a new contract with your landlord or even sublet some rooms. Turning to energy-efficient solutions will help reduce your energy bills. Installing LED lights and making sure your heating or air conditioning systems are in good order and fitted with smart meters are easy ways to achieve this goal. Some energy suppliers even conduct an energy audit for no fee.
Switching to an economic energy tariff or even a green one can help you save money – UK business electricity prices are 44% higher compared to European household prices, and approximately 92% higher than European medium-sized firm prices. Finally, while it may seem trivial, closing the blinds during summer or installing programmable thermostats in winter will also positively impact your utility payments.
Increase operational efficiency using modern technologies
Technology investments pay for themselves through labour and time savings. Today, most companies are already applying artificial intelligence (AI) to perform various tasks. Instead of spending money on technology for its own sake, identify any repetitive operations that can be automated. Automation of invoicing or sales processes may help significantly reduce expenses and errors.
Investing in a comprehensive CRM system will automate sales follow-ups for you. Various project management (Asana or Trello) or collaboration (Slack) applications are useful for organising meetings and minimising communication via emails. Using online forms instead of printed forms for various purposes can contribute to efficiency and time management. Implementing AI with a clear purpose in mind will yield far more results for a business than trying to shoehorn it into existing processes without a clear strategy.
Manage your inventory carefully
Inventory-related expenses can also be reduced. Adopting a just-in-time policy in regard to inventory means ordering smaller amounts of products more often and thus reducing unnecessary stocks. Forecasting your demand and buying in accordance with it is a proven method to save money. Finally, consider disposing of any leftover products before their expiration date through discounts, for instance. Relying on a single supplier can make you vulnerable to price increases and leaves you unable to leverage your purchases’ price. Comparing prices offered by different suppliers and negotiating will allow you to lower material-related expenses. It might mean that, although there would be a certain fee for switching, you would end up paying 10–20% less for materials. You may save on logistics or packaging by negotiating shipping fees or switching to a local courier company.
Manage your marketing budget
Don’t neglect marketing activities entirely – it’s an important factor in business growth; however, you should be selective regarding your expenditures. Any marketing activities such as ads which have proven to be ineffective, should be discontinued.
Focus on more effective marketing strategies, such as targeted social media and email campaigns instead of broad print and digital advertising. Your employees should be encouraged to reduce expenditures wherever possible, such as choosing online design applications or attending free seminars instead of purchasing software or spending too much money on participating in paid conferences. Saving on office supplies can contribute to decreasing costs as well.
Maintaining healthy cash flow
Reducing costs will not be enough unless you optimise your cash flow. Delays in receiving payments result in significant extra costs – managing your clients’ debts takes additional time and, eventually, forces you to resort to borrowing. To speed up the collection process, make sure you always send timely invoices to your clients, provide attractive offers to those who pay promptly and pursue your clients constantly.
Encouraging payment via automated direct debits or online banking will also help you speed up collections. If you experience continuous cash flow problems, consider invoice financing or factoring – it will provide your unpaid invoices with additional liquidity. Always have some cash reserve available and forecast your income and expenses to prepare for potential shortfalls. See Rise Funding’s guide on how to maintain company cash flow for specific recommendations.
If you need to borrow temporarily to manage cash flow, you can opt for a cashflow funding solution. While cutting costs is a priority, you should continue investing in activities ensuring future sales (for example, training your staff or maintaining certain equipment). Proper cash flow management and cost-cutting can help you survive a tough economic period and prepare for the future.
Throughout this article, we’ve shown that lowering costs requires multiple systematic measures. Auditing all your expenditures, relentlessly renegotiating agreements, automating your processes and avoiding waste of energy, time and inventory, along with maintaining cash reserves, should help your business thrive cost-effectively and efficiently.
If you are looking for a loan, Rise Funding can help find the best option for you. Whether it’s a business loan or others, we’re here to help you make a decision with confidence.
Plus, applying with Rise Funding doesn’t affect business credit. Contact us via the form below, or get an instant business quote through our online questionnaire.
