Businesses have a lot on their plate at the moment, so cost cutting can slip down the agenda. Clive Lewis, ICAEW’s head of enterprise is here to explain how to make trimming the fat less painful
Inflation is just one of a number of pressure points currently facing businesses, especially small- to medium-sized enterprises (SMEs). Reigning in capital expenditure is one measure that is within a business’s control and can make a difference between a profit and a loss. But it’s not always clear how to put this into practice and many companies make silly mistakes. Businesses need to be on their metal to conserve cash and cut costs. This will stand them in good stead when recovery becomes more firmly established and will help them take advantage of any opportunities that arise.
Avoid common mistakes that businesses make when trying to cut costs whilst preserving cash flow:
1. Renegotiate with your suppliers
If you haven’t reviewed terms with your suppliers in a while, then take a look at what they’re providing you and if this still meets your needs. Then approach them with a deal you feel is more suitable.
2. Review utility costs
Gas, electricity and water bills are some of the highest controllable bills your business will pay. Be sure to regularly shop around for the cheapest supplier and avoid running month to month on estimated meter readings. Also, check if you are owed a rebate.
3. Rule out non-essential business travel
A large portion of business travel is out of obligation rather than necessity. Be open with your clients and establish if your attendance in person is really required. Suggest alternative methods of communication e.g. telephone or video conferencing.
4. Examine expenses claims carefully
Review all expenses claims by staff and reject those that are not really necessary. Then meet with them and explain the position.
5. Look at the cost of debt
Often expensive and excessive debt is what runs companies into trouble. Get your accounts settled and try to pay off some of that debt. Shop around with other banks and see if they are interested in taking over the loan.
6. Utilise tax allowances
Make sure you’re paying the right amount of tax and that you have claimed any tax allowances available to you including capital expenditure, home working, personal allowances and entrepreneurs’ relief.
7. Follow up on monies owed
Chasing the settlement of an account of a long standing client can be awkward. However, in failing to collect your debts you are putting your own company at risk. Manage your cash flow effectively by chasing up monies owed.
8. Look after prompt payers
Your customers can shop around too so try offering a discount to customers who pay on time or agree to pay by standing order. Better still; cover the cost of the discount by factoring it into your prices. You’ll save time, money and the stress of chasing late payments.
9. Keep on top of payments
Going through your payments could uncover additional cash. Chances are you may have double paid at least one invoice during recent months. Plus, you might discover payments that are too high or that should have been axed already.
10. Take professional advice
Seek professional advice on appropriate cost savings for your business. Through the ICAEW Business Advice Service you can have an initial meeting with on of our chartered accountants completely free of charge. Visit www.businessadviceservice.com for further details