There was an audible gasp last month when publishing group Emap announced the closure of Smash Hits magazine after 28 years as the pop industry’s bible. It came as a shock to fans past and present, like losing an old friend.
And so it was for Marcus Rich, managing director of Emap Metro, which published the magazine. But glance at the numbers and you’ll see why his decision was a no-brainer – tough but necessary.
EVOLVING MARKET
Smash Hits had not delivered a profi t in two years and was at the mercy of capricious, yet alarmingly techno-savvy pre-teens, whose demand for ‘pop news now’ threatens to make obsolete the industry for monthly magazines.
The total circulation of teenybopper fanzines has collapsed by almost a third in recent years, a development which translated to a 25% reduction in advertising spend throughout the market.
Today, kids would rather download the latest gossip instantly on their 3G mobile phones than trek down to the local newsagent for print and paper news that from their point of view must seem like it was written by a scribe with a quill.
But while the fossil that was Smash Hits has finally crumbled, its offspring are in rude health. Some 5.3m people tune into SH! TV every month, 120,000 visit the website every week, and approaching 800,000 get SH radio through their digital televisions.
Importantly, says Rich, all the new platforms are profi table. “We thought long and hard about making this decision. But the world has changed and today’s teen wants different ways to access their music. The good news is that the brand continues,” he says.
“Business is about sensible portfolio management and that has to drive decisions rather than sentiment. We acknowledge that it is sad to say goodbye to an old friend, but it was the right thing to do because the magazine’s time had passed.”
The lesson? Knowing when to cut your losses is as important as knowing how to make things work; and not even iconic loss-leading products should be immune from a good spring clean when it comes to achieving your strategic goals.
In Smash Hits’ case most employees were offered alternative work within Emap, but securing jobs should never be your priority: it could lead to even more losses down the line if your business gets into financial difficulties.
MAKE SMALL CHANGES, BOOST PROFITS
Focusing what you do into a lean, maximally profi table portfolio of products or services is one way to improve your margins. Another is cutting your costs. That means everything from IT to HR to stationery; the cleaner, your utilities and the space you take up.
Bristol-based digital agency E3, a £2m-turnover business with 40 staff, underwent just such a comprehensive sweep following acquisition of a rival business late last year.
“It’s always hectic in the run-up to Christmas,” says Stuart Avery, E3’s joint managing director. “So the period after the holiday season is a good time to sit back and think about where things can be improved.”
Avery uncovered some of the biggest savings in the nuts and bolts of the company – the unglamorous nitty-gritty, such as energy supply and stationery, which are too often overlooked by directors with their heads in the clouds.
“We run lots of servers so our energy bills are pretty high. Our financial controller did some research into electricity providers and managed to cut our annual bill by 30%,” he says.
Ironically for a web solutions company, pens, staplers and other stationery are E3’s second biggest outlay after salaries; an area of the business that cried out for a re-think. Printing quotas were sworn in as a result.
The management team drew up a printing ‘census’ and consulted employees on ways in which they could cut down. According to Avery, people were cagey about the new limits but became more co-operative once they understood why the changes were happening.
Communication with staff is essential to any change in strategic direction – but that means knowing when it’s time to talk and fi nding the right words to communicate your plans. Failure to make things clear could result in a stampede towards the door.
Hypothetically speaking, there are hundreds of ways in which your business could save money. Experts recommend that you keep a constant look out for cash leaks and meet with your management team regularly to discuss where costs can be cut or money made.
Everything that your company can buy exists in a liquid market where prices rise and fall. Energy values are going up at the moment, for example, while broadband and mobile phone tariffs are coming down. It also pays to keep macro economic data in mind: the cost of offi ce space will plummet in times of sluggish growth.
Being aware of market fl uctuations could earn you enough to bankroll the Christmas party or reward shareholders and managers. With that in mind, we look at some key areas where you could be quids in.
OFFER STAFF BENEFITS, NOT MONEY
Salaries, bonuses and expenses are almost always a company’s biggest costs, so it makes sense to start here. Tread carefully, however, overzealous tinkering could lose you precious staff members, or worse land you in a legal fix.
Salaries and bonuses are the best way to incentivise employees, but there are other ways of ensuring staff loyalty and productivity. Flexible working conditions, training and days out are alternatives – some of which are tax deductible – so give them a go.
It sounds obvious, but telling staff what you want will motivate them to an extent. Workers without guidance are far more likely to become inactive and idle; and that’s when they start costing you money.
John Fay, managing director of SFL, a leadership development business, says workers thrive when they are assessed regularly. “Successful companies are constantly reassessing staff, setting them targets and rewarding them for getting results,” he asserts.
Updating assessments every six or 12 months gives you an impression of whether a worker can follow orders, is a good manager or can work in a team, and you can track their development over time.
But if your staff are already trained up, motivated and know where they’re going in life, then you might want to do a cost-cutting exercise on the systems through which you calculate and pay their expenses.
David Vine at GlobalExpense, an outsourcing company that track
s and manages expenses on behalf of business customers, says a lack of awareness about the potential savings is his company’s biggest competitor. “It’s because the consequences of not changing are rarely business critical,” he suggests. “But it’s such a big outlay and surveys suggest people fi ddle expenses regularly, so it should be a priority.”
RE-VISIT IT ARRANGEMENTS
For many owner-managers, technology is confusing and elusive. It’s hard to pin down why it costs such and such an amount to support your network, maintain your website and field your calls.
But knowledge is power in this area and it pays to understand the basics. That said, IT is one of the most commonly outsourced areas of business and it’s easy to see why.
When looking at your IT infrastructure, make comparisons and see who’s offering what. Prices of software, hardware and technical support may well have come down since you last looked, so it’s worth putting in some legwork.
Conversely, you should ask yourself whether your current IT platform addresses the needs of your business and whether, in reality, you might be spending too little.
Roger Rawlinson, director of IT consultancy NCC Group, admits it’s diffi cult to price IT infrastructure, but is sure some businesses are paying too much. Just as bad, he says, many more are spending their budget on the wrong stuff.
Summing up the key considerations, he suggests: “The questions to ask are: are you spending enough or too much; are you losing sales through unreliable communications or might you experience a system failure due to poor capacity planning?”
Major checks should take place once a year or when material changes to the business are likely – such as a merger or acquisition, but someone should be monitoring your website and back-up systems on a daily basis.
SWITCH MOBILE PACKAGES
Mobile phones may be more straightforward when it comes to costs, but the market is in a constant state of fl ux, and new deals are cropping up all the time. It’s best to keep contracts as short as possible and look out for offers – especially if you use a lot of phones.
Jonathan Elliott, head of business services at utilities broker The Energyhelpline.com, says businesses can save thousands on mobile and landline packages.
Historically, companies paid normal mobile rates – say 40p a minute – for employees to call one another. Today people working for the same company can call each other for free. Some packages include free insurance, a saving of around £60 a year per handset, while others offer cheaper deals for overseas calls: handy for roaming executives.
“There are so many permutations of deals that some quite interesting savings can be made,” asserts Elliott. “If you move networks you keep your phone number and you won’t have to learn to use a new whizzy phone – a lot of people don’t realise these are issues from years ago.”
Richard Ashley, head of SME marketing at T-Mobile, says bundling up your phone package can also bring about substantial savings.
“When considering business tariffs, companies should look out for plans that offer tailored allowances covering all devices and mobility costs, as well as unlimited free calls between employees on the same account,” he says.
“Calls overseas can send costs spiralling, so price plans that include calls from the UK to Europe and the US within their allowance deliver signifi cant savings. Mobile price plans that deliver the most value to businesses should let users share allowances across the business to minimise waste.”
GO ‘GREEN’, SAVE MONEY
Make little cuts and you could save big bucks down the line. It may sound finicky, but small changes like installing energy saving light bulbs (which cost more than traditional bulbs but last eight times longer) make a difference.
Envirowise, a group campaigning for greener business practices, says setting your printer to print on both sides of the page for everyday use, buying recycled paper and printing internal documents in black and white will improve your bottom line.
CHECK ENERGY CONTRACTS
Companies must understand their energy contracts, Elliott adds. Remember when they run out and know what clauses are involved. This is especially the case when it comes to ‘evergreen’ contracts, which automatically renew unless notice is served 90 days before the contract ends.
“We advise customers to serve notice on their contract as soon as it is signed, so at least it means the job’s done and they can shop around when the contract ends. I know some red-faced businesses that lost thousands of pounds by getting trapped,” he warns.
Another potential pitfall comes when you move premises. The energy supplier to your new building will automatically put you on an ‘out of contract’ rate – which is often exorbitant – because no tariff has been agreed.
When it comes to energy contracts, Elliott recommends that businesses fi x for as long as possible. He cites the extreme example of a business employing 30 people whose premium rocketed 66% when a 12-month contract expired. This is why ‘tariff management’ is so important, according to Elliott.
“There is one electricity tariff that lots of businesses use where you pay whatever pence-per-kilowatt hour at all times during the day. But if you’re a pub you want a rate that charges you a lower rate in the evening and at weekends,” he suggests.
It also applies when you make upgrades to your premises or products. Elliott uses the example of a clothes shop that diversifi es into food, and requires more electricity running through the night for refrigeration. In this case you would go for a discounted night rate, he says.
GET RED TAPE AND TAX ADVICE
In general, it’s vitally important to know your legal obligations when making changes to your business, no more so than if you decide to reduce headcount or move workers around.
Employment law has a long reach and any major decisions in this area should be carried out only after consulting your legal team. People must be informed of changes to their contracts in advance and have a right to question the decisions you make.
Business laws and taxes are, of course, extremely complicated and a good working relationship with your accountant and lawyer is one of the best ways to ensure compliance and avoid hot water.
But according to James Thorby and Peter James at Clarkslegal LLP, it’s up to the management team to track business critical issues such as intellectual property, data protection and ongoing contracts, as part of the ‘spring clean’ process.
Business agreements, like other legal obligations, date quickly when it comes to fast-growth companies. Insurance terms change as you take on more employees, as do employment laws and company registry requirements – all of which are set against the backdrop of a regulatory regime that updates twice a year.
“Beware of latent problems such as environmental liabilities and pension liabilities. Over time these can grow unnoticed and destroy value in a business,” advises Thorby.
Turning to the issue of contracts he adds: “These need to be updated to reflect current business. For example, an old contract that worked in the preinternet era will not work for internet trade, you can’t keep recycling the same one.”
Handing responsibility for human resources and payroll to outsourcers will relieve some of this pressure, but refrain from getting too ‘outsource happy’ – or you’ll end up with a business that is nebulous and incoherent.
And remember: outsourcing has potential legal pitfalls too. Matthew Hattersley, an associate in Eversheds’ Commercial Contracts Group, advises you to be covered if outsourced functions end up costing you more or if the service is worse than you’d get by keeping it in-house.
He recommends binding your third party to hand over duties properly if you decide to switch provider: “You should always consider how you are going to exit the contract. Make sure that on termination they have obligations to transfer knowledge to the new provider even if it is a competitor,” he says.
Paul Samrah at Kingston Smith accountants adds that compiling and updating a SWOT assessment – analysis of your strengths, weaknesses, opportunities and threats – will help you decide what needs outsourcing and what doesn’t.
Finally, do not fear the prospect of a systematic spring clean – like scrubbing the cooker or defrosting the fridge you’ll feel better when it’s done. The more comprehensive the sweep, the more savings will crop up, but a quick fine-tuning here and there should help margins too
Case study: Spring cleaning your office
Company: Instant Offices
“Ways to save money include submitting an appeal to your Local Authority to reduce your Business Rates or conducting a detailed space audit and utilising your space more effi ciently,” says Instant Offices chief executive Rob Hamilton. “However, the most costly mistakes are often more strategic.”
The UK office market is controlled by institutional landlords who want to tie you into a lease for as long as possible. It’s diffi cult enough to predict headcount in the next 12 months, let alone in fi ve to 10 years.
The serviced office market provides fl exibility for smaller requirements and enables a business to grow by paying only for the space that’s used. Until recently it has been very diffi cult to lease prime offi ces for larger numbers of people on fl exible terms. Instant Offi ces has entered into partnership with major UK landlords to provide fl exible space for shorter contracts on competitive terms. For more information go to www.instantoffi ces.co
Case study: Spring cleaning your bills
Company: Front Page Pub Group
Over the past 20 years the Front Page Pub company has developed into a profi table group of seven pubs in and around London. They include The Rampage in Covent Garden and The Racing Page in Richmond.
With heating, lighting, kitchen equipment, cold-rooms and entertainment all constantly on the go, energy is one of the largest overheads eating into profi ts.
In 2001 Front Page entered a fi ve-year fi xed electricity contract during which time the annual energy bill averaged £40,600 – or £5,800 a year for each venue. At the start of 2006 the renewal bill was around £70,000 for a 12-month contract.
The group suddenly faced a 72% increase in bills. It turned to Energyhelpline. com, which negotiated an alternative 2.5-year contract for which the forecast annual bill is £47,500 – a total saving of more than £55,000.
The alternative offer was from a supplier who was at the time looking for customers of a similar profi le to the Front Page Pub Group – hence the discount against the incumbent supplier and against the prevailing market.
