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Five-minute money masterclass: how to keep your costs down

Written by Adam Pescod on Tuesday, 07 January 2014. Posted in Financial management, Finance

Given rising utility prices, there’s never been a better time to trim back on overheads

Five-minute money masterclass: how to keep your costs down

The announcement of further price hikes from energy firms was met with the usual outrage last month. Whilst homeowners and entrepreneurs continue to struggle under the weight of even bigger gas and ‘leccy’ bills, the energy giants’ top brass are feeling the benefit of another cushy pay rise. The government is creditably trying to curb such excesses and make life a little easier for customers, but families and businesses are nonetheless preparing for the inevitable. Yet, every cloud has a silver lining, and there are still ways that firms can minimise their business costs in all areas – including energy – and make profitability seem less of a pipe dream

 Secure the best deals possible

A business owner that doesn’t possess an ample set of negotiation skills is ultimately going to be left out of pocket on a regular basis. Frequently steering things in one’s favour will therefore help no end when it comes to securing the right prices. “You will be surprised how much you can change something by negotiation,” says Stephen Fear, entrepreneur in residence at the British Library. “My advice to any business when negotiating a contract is to focus on the job in-hand. Don’t just look at the terms and think ‘oh well, that is it, we have got three quotes and that is the cheapest. Let’s pick that one’. It is important to read the paperwork, understand the contract and negotiate, negotiate, negotiate.”

 Remember: location isn’t everything

Being slap bang in the middle of a thriving city certainly gives an enterprise a degree of gravitas, but such locations come at considerable expense. Fortunately, improved transport links lessen the need to think big when picking a base. “We have looked at offices in Manchester and for the same space we have here in Stockport, we will be looking at three or four times the costs,” comments Ben Wilson, owner and managing director of e-cigarette firm Freshcig. “We don’t feel the need for our business to be city-centre based. You can be here in 21 minutes on the train. It just makes so much more sense.” The tax benefits are palpable too, especially as far as Wilson is concerned. “We also choose to go for offices which fall under the business rates relief scheme,” he adds “By choosing certain space, you can actually come under the rates threshold and that is a massive saving.”

 Leave it to the robots

One of the biggest costs a company incurs is labour. However, the need for additional staff is diminishing as the technology age continues apace. “Businesses increasingly look at technology to help cut overheads,” explains Clive Lewis, head of enterprise at professional chartered accountant organisation ICAEW. “That could be anything from simplifying your accounting procedures to much more simple data-processing.” Wilson is certainly an advocate of minimising unnecessary human cost wherever possible, revealing that he uses a cloud-based software solution to do his own accounts. “It is about looking for systems that do things that humans can do and that can do them better, more productively and in less time,” he says. “We always pay a high initial price for a system and reap the rewards as time goes on.”

 Spread the load

As far as energy bills are concerned, there is much to be said for throwing a bit of variety into the mix. Fear believes this can help save a great deal of hassle. “I always like to spread energy costs across different fuel types,” he comments. “If we have a factory, part of the factory would be electricity and part would be gas or oil. If you are suddenly in dispute with an electricity, gas or oil supplier, the very fact that you have different types of energy supply means that you can continue the business while that dispute is going on.” Looking at alternative sources of energy can also help with things on the cost side. “In the longer-term, buildings that are very sustainable, well-insulated and have Biomass boilers will be very cost-efficient,” comments Toby Parkins, co-founder and managing director of software development company Headforwards. “Biomass is about 3p per kilowatt compared to electricity which is 14p per kilowatt and oil which is about 6p for every kilowatt.”

 Take care of transport

Whether internally or externally, the price of transport to a business is something that can be reduced in a number of ways. A business that is reliant on imports, such as Freshcig, should always keeps a close eye on postage costs and use sea freight where possible. “You have got to weigh up how quickly you need your stuff,” says Wilson. “But as and when the time is right, it is best to convert to sea freight because the extended margins that you will make on the product are very beneficial.” And as for transportation within a company, Fear bangs the drum for leasing over buying. “Once you get to running a bigger fleet, it can often be more economical to lease because you have got a modern stock of vehicles that don’t have as many breakdowns,” he says. “It can be advantageous providing that you make sure you are happy with whatever is in the lease contract.”  

About the Author

Adam Pescod

Adam Pescod

EB's former editor, Pescod was tasked with ensuring these hallowed pages are rich with excellent, engaging and error-free stories, all written with the entrepreneur in mind. Pescod previously plied his trade penning pieces about pubs and pints. He is also a sucker for alliteration. 

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