Fantastic news! Your revenue growth plans are exceeding your expectations, and you’re on track for another successful year. Your customers love your products and services and are coming back for more, time and again. You secretly know that next year is probably going to be the same in terms of revenues, but have you also checked out your cost base?
One of the hardest disciplines a business owner faces is the ability to scale their business without loading up its costs. Anyone can sell a £10 note for £9 to increase their sales, so how can a business prosper financially to increase their profit margins whilst growing their sales volume?
Start with a plan
Knowing your financial numbers inside out is not just for pitching a business idea on BBC’s Dragon’s Den. It’s essential to help achieve any financial objective. Most smaller businesses can simply construct a basic spreadsheet showing sales by product together with the costs detailed by line.
Planning gives you a chance to question each line on the spreadsheet and make adjustments where necessary. Spending time away from the daily operations also allows you to take a real step back and think more about the future, rather than today’s burning issues.
If you don’t have a spreadsheet program, then simply grab some A4 sheets of paper. Start by going through your last year’s bank statements to find all direct debits and standing orders, or simply look at your online banking account where there should be a list. Check you haven’t forgotten any fixed or variable costs that you may pay by cheque or cash by referring to a profit and loss account.
Once you have all your costs listed, it’s time to ensure they’re the lowest possible.
Tackle the largest costs first and be efficient
The biggest gains to profit will come from the biggest costs. For most businesses, it’s going to be staffing or cost of goods sold.
Productivity gains
Rather than seeing if you can "cut heads," it’s better to focus on productivity. You can delay employing more people by making an existing workforce far more productive. Productivity is a huge area that can’t be covered entirely in this article, but below are some areas where improvements could be made:
- Invest in IT and software so that mundane or time-consuming tasks can be undertaken by computers rather than people. That frees up time to spend on building your business.
- Work smart to save time and produce a more efficient workplace. Analyse and improve existing processes so that your work is performed as quickly and efficiently as possible.
- Ask your staff about which areas could be improved. The people performing the job will always know it better than you, and there’s always ways to improve what you already do. Either ask them directly one-to-one, in groups or via an anonymous suggestion scheme.
Checking Supplier Contracts
Every business has their preferred supplier, but you might be able to save on costs without sacrificing quality if you switch. Review your supplier list and compare your larger cost items to check if you’re still getting a great deal.
Compare prices of commodity services
With modern technology and a multitude of comparison sites, it’s all so easy to reduce annual costs for insurance, utilities and other expenses where they are simply a commodity product. For example, an energy broker can save you 60% on your electricity costs if you’ve never switched your supplier before.
All contracts should be reviewed each year and not left to be automatically renewed. As a rule of thumb, you should be able to save 20-30% on a renewal quote just by switching to a new provider at the end of your agreement. All utility companies increase their prices each year but don’t show you what you’re currently paying. That means you have nothing to compare your renewal quote to.
Gas and electricity are some of the easiest to change because the product is a commodity.
Telephones, mobile phones and broadband are also commodities, and it pays to switch each year. For business users, prices have fallen in recent years for telecom products despite annual price rises for those under existing contracts.
As with any cost that you’ve not switched for a while, mobile phone bills can be reduced and still include more data and voice calls with upgraded handsets than you might currently have. There are plenty of websites out there that can help you up to 40% if you change a contract tha'’s run its course.
Any insurances you have can also mostly be compared online but the process is longer due to the amount of information required. As with energy, it’s probably best to find a local broker who can manage this all for you. The types of insurance products you may have include professional indemnity, public liability, buildings and vehicle cover.
Avoid large step-change costs
While a business is growing, it can quickly outgrow its premises. Moving to another location is a huge expense once you factor in IT, removals, potential staff relocation costs and disruption to business operations. Keeping fixed costs under control enables profits to flow more easily. Remodelling existing internal desk layouts could put off a move.
If you have mortgages or loans that are weighing down your working capital requirements, you may be in a position to renegotiate the terms or move to a cheaper rate. If you took out your finance more than a few years ago, commercial interest rates have fallen steadily in that period.
Once again, a broker can find the best deals available and reduce your monthly outgoings.
In Summary
If you’re able to a take a step back this weekend from your business and begin to list your current costs, then you’ve taken the first step. All internet comparison sites are open 24 hours a day, so you can start comparing prices for your utilities to bring those down.
The plan you make will show if your profit return on sales is increasing as you grow. Scaling a business quickly is hard, but with the right sales and cost management, it can be achieved.
About the author
Jason Smith runs the operations at Businesselectricityprices.org.uk (BEP), helping small and large businesses keep their energy costs low.
Image courtesy of Businesselectricityprices.org.uk
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