Keeping costs down

Keeping costs under control will release resources for growth

• How do I know when I am spending too much?
• What is an 'unnecessary' expense?
• How do I negotiate better prices from suppliers?
• How do I produce the same quality at a lower cost?
• Hints and tips

How do I know when I am spending too much?

Watch the profitability of your business on a month by month basis. If your sales are level and your profit is falling, look closely at your expenditure - and cut costs. It might be sensible to plot both income and expenditure on a break-even graph and put this on your office wall.

If you have budgeted well, and if you achieve your sales targets without over-spending, then you will usually be okay. Watch out, though, if you sub-contract a large part of your work. In this case, you need to watch your break-even point closely as well.

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What is an 'unnecessary' expense?

Most small businesses need to keep tight control of their expenditure to remain profitable. Every time you want to spend money, ask yourself how this expense will help you add value to the work that you do for your customers. If you cannot justify the expense in terms of enhancing your product or service, or making you more efficient, then you will probably survive without it.

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How do I negotiate better prices from suppliers?

Competition amongst suppliers is the biggest factor on their pricing policy. So keep an eye on the different suppliers in the market and what they are charging. Remember, however, that it does not always pay to buy the cheapest. In the same way that you are aiming to differentiate yourself from your competitors, so are your suppliers. Cost is important - but you may also want to consider the quality of the product or service, after sales service, reliability of supply, etc. But always talk to your suppliers about their prices - and be ready to change if their prices are too far out of line. You may find that you can get cheaper prices by agreeing to pay more quickly or by agreeing to a long-term supply contract. Your strongest negotiating position is knowing that you can go elsewhere for a lower price.

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How do I produce the same quality at a lower cost?

You may think that this is a silly question, since no-one wants to spend more than they need. However, you should be continually watching for new developments and technologies, which may enable you to become more efficient and to increase your productivity. Visit trade fairs to keep up to date with the most cost-effective equipment. Experiment with new approaches. If you employ staff, ask them for their ideas - you need to do your best to ensure that they are using all their time productively, rather than wasting it on administration or other activities that do not generate income.

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Hints and tips

• Good cost control is part of effective financial control, so ensure that you have a good accounting system. Check the figures regularly - at least monthly - and act on the figures promptly if you identify problems.
• Beware of false economies. Compromising your level of quality and service could lose you business. If cost cutting leads to deterioration in working conditions for staff, there is a danger that they become demoralised and perform less well - which will exacerbate the problem.
• Confront cost problems immediately - and take action before the problem becomes insurmountable

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