As a business owner, one of your ambitions is to run a profitable business right? We can say that with confidence, because it is the mark of a business that is not only covering its costs, but actually making money too – a staple of a successful business. It’s a goal most business owners share, with many goals centring around becoming more profitable. So, how do you do it? Generally speaking, there are two ways a business can become more profitable – by increasing its sales income, and by controlling its costs more effectively. Since they are both quite different, we’re going to focus on controlling costs.
Controlling your costs might sound complicated, but it’s actually very simple. It’s all about making sure that your business isn’t spending more money than it needs to or spending it frivolously. It’s also about making sure you aren’t wasting money (which you can do without realising it), and that you have a plan for saving money where you can. According to Sage, only around 39% of small businesses focus on controlling and reducing their costs as a way of increasing profitability, which could give you a great competitive advantage! But how do you do it?
First off, look at ways you can save money on the things you use every day. One of the major ways most businesses can save money is to re-evaluate their energy spending. Look at your current energy tariff and ask yourself if you’re getting the best deal. You’re no longer tied to the same 3 big-name suppliers, and there are plenty of energy providers out there who can give you a better deal on your energy costs. You can then look at the way you use the energy you’re paying for. Are you wasting energy, needlessly running up the bills? For example, are you constantly leaving computers, monitors, printers and other electrical items powered on, even when you go home for the day? For example, just turning off your monitor when you’re not there, and using the power save function when you’re using it can save you up to £45 a year, per monitor. Small behavioural changes like that could reduce your energy bills by 10%, saving you a nice chunk of money over the year.
Lowering Wasted Money
Now, let’s look at where you might be wasting money. These are the area where you could easily be making savings, but for one reason or another, you aren’t. For example, when you need to buy something new, do you shop around to find the best deals? (if you don’t, then you’re in the company of 41% of small businesses.). Do you try to negotiate discounts before you buy, or contra deals if both parties are looking to purchase? (58% of small businesses don’t do this either). When it comes time to spend money, do you buy on instinct, like 53% of business owners, or do you research your purchases to make sure you’re getting get best value for money (like 47% of businesses)? It might seem like a waste of time to research your purchases, search around and make sure you’re getting the right thing at the right price, but this can actually cut a lot of your spending and help you control the costs of your business more effectively.
And finally – what are the actual costs in your business? Here you should look at everything in your business that costs you money in some way and see what you can do to address it. For example, 82% of business owners will see an increase in the cost of raw materials year on year, which may start to eat into their profits. You can counteract this by implementing regular cost review points for all of your materials and doing cost comparisons to switch suppliers if they have risen too much. You should also look at your staffing – do you have a lot of sickness and absences in your business? This might not seem like a cost initially, but high rates of sickness and absence could cost your business £1,500 or more. So by investigating the causes of absences and implementing some new procedures around them, you can cut the cost and create a happier work environment too!
Of course, understanding the costs of running your business isn’t always simple. Even if you have a profit and loss report to work with, it can still be a challenge to work out what all of your outgoings are, and how you could reduce them. But we can help. At Accountwise, we work with small business owners to help them gain clarity about their business, and get some control over their costs, ultimately helping them become more profitable and reach their goals. For more help understanding your business costs, just get in touch with the team today to book your free consultation.