Despite the budget containing some good news for small businesses the recent announcement regarding the rise in the minimum wage will intensify cost pressures.
One of our main tasks when we work with small businesses is to help them reduce costs. Regardless of economic climate it is always possible to reduce your cost base if you are committed to do so.
Some of the main ways we help small businesses reduce their costs in the long term are:
1. Multi Year Business Planning with Annual Budget
Business plans are not just for start-ups or when you need additional investment or a loan. A robust multi year business plan should be the blueprint for your business and therefore, your expenditure.
Planning your expenditure several years in advance is not easy, and do not expect it to be 100% correct. The most important is to understand the upturns and downturns in your business and how this affects your cost base.
Setting clear benchmarks help you plan better in the short term. Each year set a firm expenditure budget and update this at least every three months in a forecast.
Having a clearer picture of expenditure in the future provides you with choice and the opportunity to buy when demand is low. Take travel costs, for example, massive savings can be made if booked in advance.
2. Zero based budgeting
Zero based budgeting is a budgeting methodology that forces a business to constantly review their costs. Traditional budgets are created and approved based on historical costs.
With zero based budgeting each department starts with no budget and have to justify their expenditure each year. All expenditure is reviewed and verified before it is approved.
The biggest advantage of zero based forces a business to review their cost base at least once a year and ensure they operating as efficiently as possible.
3. Regular Management accounts
The importance of producing regular management accounts cannot be stressed enough. Simply processing transactions without analyzing the results against a budget or forecast with not help drive business improvement.
Management accounts can be used to leverage your business and can become a key driver in identifying cost savings.
4. Improve Procurement Processes
Start leveraging your spending power by negotiating better prices with your existing suppliers.
For instance, if you use several employment agencies to supply temporary staff consider using just one or two.
If you send more guaranteed business you send to a supplier, the more leverage it will give you to negotiate a lower price.
Planning expenditure in advance gives you the opportunity to source goods or services from the widest possible pool of suppliers.
Planning is the most important aspect of implementing a cost reduction program in a business. Each technique is based on setting targets and reviewing performance regularly. A business who does will achieve year on year cost reduction and become more efficient.
Next time I will discuss ways to reduce costs quickly.
- Implementing Cloud Computing
- Getting control of your office costs & utilities
- Redefining how and where your business operates.
- Renegotiating contracts
- Building a more flexible workforce
- Changing your travel policies
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