There are 7 main ways in which to grow your business. This blog is focused on the 6th way to ensure business growth – reducing business costs.
Every business wants to increase profits and to achieve this business owners often believe the most effective way to increase profits is to increase sales. However, the reality is that you can increase your profit without increasing sales and by focusing on reducing business costs. It is only when the business is running in a lean way that it may be time to look at increasing sales.
There are two main types of costs fixed costs and variable costs. Fixed costs are not usually related to sales and usually consist of rent, insurance, utilities, and fixed salaries for employees. Variable costs are directly related to the business activity and usually increase as sales increase. Variable costs can include materials, stock, and transaction fees.
Unfortunately, there is no blanket approach to reducing business costs that will work for all businesses. You will need to be confident in your business strategy to determine how to achieve a reduction in costs without a negative impact. Cost cutting should never affect customer experience or product quality.
When you are happy with your business strategy, focusing on variable business costs first will ensure you can make quick adjustments. Some of variable costs are unavoidable but there will be many costs that can when identified can make a significant impact.
Ways to manage your variable costs:
When it comes to reducing business costs, fixed costs are more challenging to influence although not impossible to reduce. If you haven’t shopped around for your utilities, now might be the time. Likewise, if location doesn’t matter are you getting the best value for money when it comes to your office and/or warehouse space. Finally, think long-term when it comes to hiring. Could you hire an apprentice? Whilst they may take slightly longer to develop, there are some financial benefits along with the ability to mold an employee to your way of working.
- Monitor and analyse it is important that you don’t cut costs and then stop monitoring this when your short-term objectives are met. It may not make sense to cut certain costs over the long term and the impact of cutting costs should also be understood.
- Create a budget budgeting and reducing costs go hand in hand. To make informed financial decision it is important to have a clear idea of costs and expenditure
- Focus on fluctuating costs advertising and marketing spend is a good place to start. This doesn’t mean it makes sense to just slash costs. Take some time to understand if all marketing activity is adding value, could any activities become less frequent or stopped altogether?
- Going paperless not only is this a smart business choice from a sustainability perspective however the cost of paper, ink and postage can soon add up!
- Product and services which have the highest associated costs, how does this impact profit? What are the associated volumes for high-cost products? Does it make sense to simplify?
- Bank charges make sure you aren’t paying for credit cards that come with a membership fee, unless overall it really makes sense to do so. Avoid potential bank charges by getting on top of your finances and ensuring bills are paid on time.
For a complimentary Discovery Call
to discuss the most appropriate level of support, a personalised quote and a guarantee of our best possible service, please complete the form below and one of our senior advisors will contact you.
Or if you prefer, please call 01296 681341
for our Wingrave Bucks Accountants