Archive for July, 2014

Controlling costs as good business practice

Cutting costs is arguably the quickest and easiest way to improve profitability, yet most businesses put all their efforts into selling and selling is unpredictable.

At a recent Business Expose Group round of meetings 41% of business owners claim they don’t have time to shop around for the best deal and 55% don’t negotiate discounts.

Below are some of the points mentioned at the meetings.

– Outsource non-core activities
– Check invoices for over charging/ Consolidate purchasing with a small number of suppliers
– Print your monthly P&L for each month of the last 2 years and evaluate each expense. Which costs have increased in excess? Which are no longer necessary? Cancel subscriptions
– Systematic cost control – Rank your expenses from highest to lowest and make one person responsible for the control of costs within your business
– Avoid making frequent small orders
– Sublet your space within your offices
– Find a 10% vendor. This is a second vendor you give 10% of your work to so that you have flexibility if your main supplier ups their prices.
– Benchmark your business against other organisations which may show that your cost performance is sub-standard. Find this information via trade bodies or employ external consultants who have unique industry knowledge
– Most business owners treat money like its limited and time like it’s limitless. Anytime an order goes out wrong, or an invoice needs correcting, it represents rework and amounts to considerable waste and you are doing the job twice but only getting paid once. Do it right the first time
– Renegotiate all contracts annually – do not allow a contract life to be more than a year. Multi-year contracts will usually favour the seller
– Ask your customers about costs, eg – how to take wasted steps out of the process or how to plan jointly to smooth production. Joint discussions will deepen relationships, show them you care and help reduce costs for both parties
– Employ ‘Just in time’ delivery so you have little stock
– Replace your lowest 10% of performers with new people that match your top 10%. This would result in a huge productivity boost at virtually no incremental cost
– Plan to make major purchases such as machinery or vehicles before they become necessary
– Refinance expensive overdrafts with loans

However almost every cost saving has a potential downside and with an overdependence on
one supplier cost cutting can weaken your position in the medium term.

In a nutshell. Controlling costs is important, but don’t become obsessive. Suppliers need to make a margin and want to do business with you.

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