One of the key aspects to maintaining a positive cashflow is to manage your costs.
Far too many business owners allow their costs of escalate and don’t have the time to consider whether they are still receiving value for money.
Consider car insurance for a moment. It is an annual cost and relatively cheap, but every years most of us spend a couple of hours trawling the internet comparison sites whilst trying to save a few £’s.
But how many entrepreneurs accept their bank changes or challenge their business rates, let alone compare office or liability insurances?
When we review business costs we often see where people are paying for services they no longer use or are paying too much for services they can acquire elsewhere.
Yes, value plays a part, but generally speaking, minimising costs is key to sound cash flow management. The less you spend, the easier it is to remain profitable and keep your cash flow healthy.
As an entrepreneur you should have a good business reason for every penny your business spends.
To do this you should at least annually, or preferably quarterly assess your business costs to find out what you’re buying, how much you’re paying and what value this brings.
Do you find yourself buying things you don’t need or paying too much for things you do need?
Could you get better value from another supplier?
Do you know why your costs have increased and what has happened to drive these costs up?
If you see your costs increasing and can’t control them but want to remain profitably then there is only one thing you can do to compensate, increase your prices.
If you need your business to reduce its costs, do you know how to?
We always start by obtaining employee buy-in and asking team members for their suggestion. As they are ‘close to the coalface‘ then they often know more than the business owner about why they buy certain things but more often than not there is a disconnect between that thing and its cost, or value.
This is where you can improve your profitability and improve your culture.
Allow members of your team to contribute. Give them autonomy for buying decisions and hold them accountably for those decisions.
We don’t advocate buying cheap, as you’ll often buy twice in that case. But we are huge proponents of seeking value throughout the supply chain.
By giving team members purchasing ability (within a given framework) and then seeking their input you begin to foster the culture of inclusivity and teamwork and very soon your team will feel a belonging.
Find out who has the best relationship with your suppliers and set up meetings to find out how you could get better value from them, not just in terms of price, but perhaps credit terms, or delivery lead times, after all, if you never ask then you’ll never get.
If you find that you can’t negotiate better deals, explore your options with other suppliers, as it could make a huge difference to your profitability.
Speak to your customers too.
More often than not you’ll find that you are spending money to provide them with things that you consier are valuable but things that they dont use or consume, don’t want or don’t need. Yes, there are always things of value some may consume, but do they all benefit from what costs you time and money to give them? (We like to think that you all enjoy ProfitMakers – If you’d like your free copy then visit here
Other savings could be significant, but have a much longer lead time, for example could you move to cheaper premises without it affecting your ability to operate and make sales?
General business overheads are well worth a visit as often significant savings can be made on utilities, insurance, telecoms and broadband – so shop around and regard no cost as fixed
If you don’t have time to shop around, then visit Utilitas Solutions who specialise in reducing business overheads.
Lastly, what about staffing and wages?
You may regard your staff as a fixed costs but have you looked at what they do?
If you utilise our Productive Profit Plan then you’ll quickly see what functions performed by your staff in house could be better dealt with by outsourcing or working with freelances to drive cost efficiencies.
Cost cutting often involves having to make tough decisions and the biggest ones are when you realise that some customers are more hassle than they’re worth.
This is a key metric to monitor in every business, just which customers are profitable for you?
If you want to increase your profitability, then start by assessing your costs.
- Are you making best use of technology?
- Could your systems be more efficient?
- Are you wasting money on marketing?
- Are you staff being fully utilised?
They key task is to produce a cost-cutting plan with detailed targets that does not affect your business output.
We do not advocate to a ‘slash and burn’ approach as before making any cuts you need to ensure that you’ve thought through as many of the likely implications.
Cutting too deeply in the wrong places can severely damage your business.
But cutting in the right places by the right amount can leave your business stronger