Reducing costs is an important factor in improving profitability and preserving cash in your business. Every business should regularly review its costs to ensure money is not being wasted. However, the current economic downturn makes this an essential task. How should you approach cost reduction in your business?
Direct and overhead costs should be approached separately. Direct costs vary with output and are the ingredients for the services and products you sell. Overheads are the costs associated with keeping your business running and tend to remain relatively static despite changes in output.
Direct costs can be reduced absolutely (e.g. by re-negotiating) or through more efficient use of resources e.g. by reducing waste or improving productivity or methods. This will improve your gross margin which is a key business performance indicator. We find that most businesses will have improvements that can be made in this area.
Overhead costs can be reduced by close examination and questioning. List all your outgoings and scrutinise in the cold light of day ask yourself, “is this essential?” Independent help can provide you with a more objective and effective outcome. We often find businesses are paying for things they don’t really need or no longer use.
For many businesses, people are their greatest asset but also the greatest cost. It’s therefore important to ensure everyone is fully productive and providing excellent value for money. This means ensuring processes are optimised and staff are well trained, supported and managed to achieve great results. If you find yourself in the unfortunate position where certain roles cannot be justified, take professional advice before making redundancies to ensure you act lawfully and treat your staff fairly.
Cutting direct costs improves your gross margin, and reducing overheads leaves you with more net profit. What’s stopping you from reducing costs today?
Since all businesses are different and may have varying financial requirements, it makes sense for one of our experts to get to know your company in greater detail so we can create the perfect package for you. To do this, we provide a free business review or site visit, enabling us to obtain all the relevant information we need to improve and manage the financial side of your operations. Contact us today to start the conversation.
Over the years we have helped hundreds of businesses take control of their finances. By working closely with owners and directors we become an integral part of the management team and as a result have long-standing relationships with our customers, many of whom have relied on our expert knowledge, advice and guidance for many years. Why not review some of our case studies or watch the one-minute video below to hear what our customers have to say?