Cutting costs to improve profits will not necessarily work if the quality of what you offer suffers. However a good financial information system will provide you with relevant information to help you make cost cutting decisions. Using an online accounting so your accountant can help with this and keep the information accurate throughout the year, will also help. The following are proven ways to cutting costs and reducing expenses…
General Ways of Cutting Costs
- Sometimes, a high volume profitable business could make cost savings
but the volume of their business actually hides that fact that there is
room for further cost savings. You need to measure in detail, not
globally in order to identify all areas you can save costs.
- It is sometimes necessary to spend money in order to save money in
the long term. For example, investment in machinery or redundancy
- Controls can help to reduce costs. For example, portion controls, stock
controls, cash controls.
- Measuring the efficiency of individuals or departments can identify
where there is room for improvement.
- Having budgets helps to identify when costs are out of control of
something is going wrong. The best way to budget is not “what did we
spend last year and add 5%” but by starting from zero and deciding what
you should be spending in each area.
- The lowest price isn’t always the best price when quality suffers.
- Changing the sales mix, for example in a restaurant can reduce wastage
of products with a limited lifespan. A limited menu will help sell more
of those items.
- Consider joining a buying group in order to take advantage of
consolidated buying power.
- Review all your standing orders and direct debits. Unless these are
reviewed on a periodic basis, some can continue that you no longer
- When making capital expenditure are all sources of finance considered
- Never sign up at the first meeting. Take time to consider however good
the deal looks.
- Always ask for a free trial.
- Do research to make sure you buy the right product.
- Always read the small print on order forms.
- Try to reduce frequency of purchases.
- See if any items can be outsourced or a subcontractor used to save
- Weigh up the costs and benefits of all items.
- Take advantage of free consultations from professional advisors.
- Offer to settle bills early in exchange for a discount when you buy.
- There are hundreds of grants available for businesses to offset against
expenditure. Check you’re not missing any. Business Links are a good
source of information on grants.
- Many government agencies offer free or low cost business advice when
you are starting out.
- Are the advantages and disadvantages of buying outright, HP or
leasing capital equipment reviewed before each decision?
Specific Examples of Cost Cutting
And For Some Specific Expenses For Cutting Costs…
- Labour costs can be controlled by controlling overtime with planning
and scheduling, labour saving equipment and improved layouts (e.g.
drive through windows). Improved employee retention reduces
- Move employees onto yearly hour contracts to improve productivity.
For example, rather than 48 weeks, 5 days a week, 7 hours a day, change
the contract to 1680 hours a year. Then you can use staff more in busy
periods rather than paying overtime. It gives staff blocks of time off and
they don’t have to sit around doing nothing and being bored.
- Can any of your staff be moved onto a self-employed basis to save
employers national insurance costs as well as holiday pay, sick pay and
maternity pay costs?
- Phone costs – least cost routing can reduce phone bills by as much as
- A small business could do away with a separate fax line and use a fax to
email facility whereby faxes appear in your email. Type “fax to email”
into a search engine and many providers will come up.
- Advertising – send camera-ready artwork with a cheque for 20% of
the rate card price and a letter authorizing them to cash the cheque and
run the advert whenever they have space. Many publications have space
left they need to fill and something is better than nothing.
- Consider an appeal against your rates assessment. Many are higher
than they need be.
- Rents can be negotiated in times of property crashes. You could ask
for a lower rent in exchange for a longer lease.
- Are bank charges and interest payments reviewed for accuracy? There are
software programs that will do this and consultants who offer a checking
- Leasing and interest costs should be reviewed regularly to see if
better terms can be obtained.
- Bank Charges…
- Always negotiate the charges with your bank.
- Use BACS – charges will be cheaper than paying by cheque.
- Don’t have more accounts than you need.
- Most banks offer free banking for at least a year and maybe 18
months to small businesses. Have you considered a change of
- Finally, the largest expense is often tax so use a great accountant who
will slash your tax bills, will advise you on cutting costs, and one who uses online accounting such as the free Pandle to save you accountancy fees! See Our Prices or get an Instant Quote.
Whilst fiscal responsibility is OK don’t waste all your time looking for ways of cutting costs.
The costs of holding stock are…
- The money spent on it that is tied up and could be used
- The risk of the stock reducing in value if it becomes obsolete or
- The risk of theft or damage.
- The cost of storage.
- Having to manage and organise it.
Stock levels need to be minimized without running out of items so that
you can’t supply what the customer needs. You therefore need a stock
control system to get the balance right.
As such, the best stock level to hold is normally one that keeps the level of stock
necessary to support your normal level of trade. By doing this you will be
able to supply what your customers want most of the time while cutting costs.
Also, the following tips will help with stock control…
- Produce sales forecasts so that you know what stock levels to hold to
meet that demand.
- Speed up your production process as much as possible by
developing good supplier relationships.
- If you never run out of stock, you’re probably holding too much.
- Form reciprocal relationships with non-geographically competing
businesses to supply each other if you run out of stock.
- Monitor your re-order levels.
- Reduce duplication of stock holding that occurs with multiple stock
holding locations. So try to keep stock in one place as much as possible.
- Try to buy stock on sale or return, which will allow you to hold more
stock without any risk or cost. Having a preferred supplier may make
this more possible.
- Apply Pateto’s 80/20 law to stock – concentrate on the 20% of stock
lines that probably make 80% of your sales.
- Only go for bulk discounts if they are beneficial after considering the
cost of holding the extra stock.
- Regular stock takes on the same day each week can help to determine