How can I cut costs in my business without losing productivity?

Many of us are fighting to protect our businesses. 
Whilst that might seem like an ‘in the now’ statement, it’s applicable whether we’re in a global pandemic or not. 
According to the latest figures from the Office for National Statistics released in November 2019, only 42.4% of the businesses that were started in 2013 were still trading in 2018. 

“Almost half of businesses make it to their fourth year (49.3%) while the percentage of enterprises that survive for two years has dropped to 68.3%” *

  • The bad news is no matter what the external circumstances, cash flow problems can cause even the seemingly successful businesses to fail. 
  • The good news? Though we don’t have control over the external circumstances, we do have control over how we run our business. We can do everything in our power to enable fast payments, cut costs, get funding and encourage a healthy cash flow. 
We’re going to start with cutting costs. 
Before we talk about how to get more cash into the business, let’s make sure we’re not spilling more cash than is necessary out of it. Especially during times of economic hardship, when every penny counts. 

Start by reviewing your budget

Do you know how much money is coming in and going out of your business in any given month? 
If the answer is no, you need a business budget. If you’re running your business on guesswork, there’s a good chance you’re spending money in places you didn’t know you were, and you may be spending more than you’re making. 
If you have a good accountant and good accounting software (our preference is Xero), a budget can be generated using two key financial statements: The Profit & Loss and the Balance Sheet. 
The Profit and Loss = a summary of your revenues, costs, and expenses incurred during a specific period of time
The Balance Sheet = what your business owns (assets) versus what it owes (liabilities).
If you don’t have a good accountant and good accounting software, you can start by creating your own budget in a document. 
  • List out all your sources of monthly income
  • List out all your fixed expenses – your rent or mortgage, your bills, insurance etc.  
  • List out all your variable expenses – costs that changed in relation to variations in sales and production – materials, billable wages, commission etc. 
It’s important to create two columns, one for your budgeted income, and one for your actual income each month, so you can see how the budget worked out and prepare better for future months.  
Whether you DIY or get some expert help, a budget will help you:
  • Know how much you need to make to cover all your expenses 
  • Get funding, as a budget is required for banks and investors
  • Plan your spending ahead of time so you don’t find yourself in a cash flow crisis

10 ways you can cut costs

Once you know what you’re earning and what you’re spending each month, you may find it’ll help your money situation to make cuts in spending. Here are some ways you can do that, without putting the integrity of your business at jeopardy.

1. Consider your workplace

Many businesses have had to adapt very quickly to running their operations virtually, and for some it has been easier than others. If you’re an office worker, you may find that your business can run perfectly well virtually, and might find you want to adapt your business model and go remote full time. If you’re in manufacturing, for example, you’re not going to be able to just ditch your workshops and warehouses. 
If you do require a physical workspace, use this time to think about whether there are any areas of your business you can operate remotely. Perhaps you don’t need all the space you have. Could you downsize or move to a cheaper location to cut rent costs and energy bills?

2. Review your banking setup

Is your current bank serving you well? You might be able to shop around for a better deal that includes:
  • A better bank account for a limited company business owner
  • A business card with cashback or rewards
  • Lower interest rates

If not a new bank, at least have a look online or give your current bank a call to see what they can offer you. 

3. Review all your contracts

Are there better deals you could be getting with suppliers? You may want to shop around for different tariffs on energy suppliers and phone contracts, and see how you can bring down your overhead costs. Assess whether all of your spending is necessary in the first place. You might be able to save costs by limiting attendance at conferences and industry shows, or cutting back on ‘splash-out’ events.

4. Replace costly outdated systems

We are living in a digital world, where cloud based systems can provide you with greater efficiency at a competitive cost. If you’re still using an outdated system anywhere in your business that requires manual input and costs a lot – now is the time to update. Look at your project management software, your accounting systems, your CRM. 
This goes for your marketing too. Take advantage of free digital marketing tactics instead of shelling out on advertising. 

5. Buy used equipment

Whatever equipment you need for your business, whether it be office ware or machinery or other – find out if it’s possible to buy it secondhand. You may find good-as-new equipment at a far cheaper price. You may also find it’s possible to lease your equipment, or buy it on finance. Both options can spread the cost out and relieve the burden of a high upfront fee.

6. Restructure your loans

If you’re finding lump sum payments difficult and it’s putting you in debt, speak to your loan provider and see what your options are. You may find that you can make monthly installments rather than quarterly or yearly, or even extend the payment period so you can reduce the cost month on month. You won’t know unless you ask!

7. Save for your taxes, prepare early

Hands up if you’ve experienced the pain of getting slammed with a tax bill you don’t have the cash for? We’ll reinforce this one till the cows come home, because it’s a reason many of our clients ask for help. It’s hard to plan for a profitable future when you’re constantly worried about keeping tax down. Create a separate account so you can save for your taxes early.

8. Cap employee expenses

You’ll be surprised how many unnecessary expenditures might be lingering in your company credit cards or expense allowances. Cutting staff spends doesn’t mean cutting staff! It just means making a plan for spending, so that those long lunches and client meetings are manageable and affordable in the long run.

9. Make sure you claim for all expenses

As a Limited Company owner, there are a range of expenses you can claim for, provided they are incurred exclusively for running the business. Here’s a long list of everyday business expenses and employee expenses from HMRC. Make sure you’re not missing out!

10.Don’t forget to view time as a cost too

Time is money, right? You can cut expenses all over the shop, but if you’ve got expensive staff wasting time on tasks that can be outsourced, or replaced with automation – you’re losing money and productivity! Don’t forget that you’re an expensive member of staff too. Cut time doing things you don’t need to be doing, so you can spend more time getting money in the door.

Ask your team

Lastly, if you have employees, involve them in this discussion. Since we’re responsible for the finances, we often forget we have a whole team around who could have a valuable input. They’re working inside the business day in, day out, and may be able to indicate areas that could do with an update, or aren’t necessary to production.

Sharing is sparing!

Get all our advice on how to get money into your business (and not spill too much out of it) in our extensive guide: Everyone wants to talk about cash flow

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