In the current climate it’s tempting to drive costs down, but this could be a false economy in the long term. Read on to find out why a positive attitude to spending could ultimately make you more money.
Managing costs effectively can be difficult at the best of times, even with the support of detailed MI spreadsheets and forecasting software. An unpredictable economy and limited credit availability have forced many companies to think about reducing expenditure across the board, however while it offers a short term fix, measures like this can cause difficulties in the long term.
A positive approach to managing costs is not to cut them, but to optimise them. The aim is simple: cut the right costs through operational change to make the business more viable. Long term cost optimisation requires SMEs to simplify their business models, rethink their organisational structures, and employ technology in new ways. It’s about getting people to do things smarter and more efficiently.
Simplify your business model
Change is inevitable in business. From customers and staff to suppliers and industries as a whole, goalposts are constantly shifting so it makes sense to regularly update your business strategy. Start by stepping back and looking at the business model in terms of its essential components: people, processes, pricing strategy, technology and market dynamics. Each of these needs to be objectively analysed and measured to identify what works and where improvements can be made.
For example, what opportunities for greater flexibility exist within the current business model? Can you marry customer’s changing needs with leaner, more streamlined internal systems and processes? You may find that reallocating resources, rather than cutting them, could lead to increased profitability and competitive edge. By stripping the business down to its basic elements, you can gain the objectivity to identify which costs are supporting growth, as opposed to those which are simply maintaining the status quo and have no bearing on customer satisfaction and future growth.
Don’t get bogged down
Lengthy complex monthly profit statements tend to generate confusion and a high workload. Our One Page Plan service gives you concise monthly reports on a single sheet of A4, providing at-a-glance updates on areas such as cash flow, profitability, debt and forecasting, as well as specific key performance indicators such as customer satisfaction and productivity. We don’t just include the figures that appear in a set of management accounts, but also the numbers that matter to your business.
Find inspiration in unusual places
Analysing the cost strategies employed by similar companies is a good place to start when looking for ideas. While the same tactics may not directly translate to your sector, moving beyond same-sector benchmarking will lead you to ask bigger and more challenging questions about how to optimise costs, borrowing ideas and increasing your competitive edge.
At CBHC we have access to sophisticated benchmarking software that helps us analyse your costs and profitability in relation to your competitors and other companies on an industry, geographical or size basis.
Get everyone on board
Your staff will have ideas and insight which could make a real difference to your business. Take a collaborative approach to cost analysis to motivate and empower staff, using their hands-on experience and skills to make positive changes and encourage them to take ownership. You may also find that employees have ambitions and expertise which could be invaluable in shaping the future of the business, but which are being under-utilised in their current role.
Track success
Make sure that successes are constantly monitored throughout any period of change, and track the tangible benefits that result. Initiatives that don’t work can take on a greater significance than wins, which can give a falsely negative impression. Approaching cost analysis in a positive way will also lead to improved morale and customer service, so it’s important to celebrate every triumph no matter how small.
To find out more about how we can help to optimise your business costs, contact our Business Advisory Team.
