Qh dear, it’s that time of year again! How to shave another £100,000 of expenditure from a budget you had already cut to the bone last year?

Don’t think of your profit and loss account below the gross profit level (marketing, admin, fixed and finance costs) as just the reason why you haven’t hit your budget, rather as a list of resources that can help your business prosper. For example, what you spend on telecommunications enables you to communicate, this means there’s bound to be a good business case for improving effectiveness here, so why spend less on it?

Finance charges are not always bad. They represent the cost of investing in your business which, in a well-run private company, should be giving you a return on capital in excess of 20%. If it’s not, then change the business model rather than starving the company of cash by borrowing less.

The green-fingered fraternity all know the difference between pruning and hacking something to death. Try cutting your way to prosperity and you may administer such a shock to the body corporate that it withers and dies. A strong business model can withstand the odd extravagance, but a weak one will grow even weaker if it’s denied the resources to recover. Spend your precious time strengthening the body of the business rather than just cutting off its branches; then prune it according to the seasons.

Ask yourself why spending was authorised in the first place – someone probably had a good idea. And don’t cancel the chocolate biscuits! A well known global service firm worked out it could save £16,000 a year in the UK alone and so stopped them. Result? It resulted in a negligible improvement in profits and a far more significant deterioration in output as its people flagged with low blood sugar every afternoon at around 4pm.

A business is a living organism. It may be made up of various parts, but it’s likely its people are the most important constituent. It moves constantly and rarely stays still, unless it’s about to die, so its cost structure should be nursed constantly. Managers who only get out the knife once a year are ignoring the business for the rest of the year.

The secret to timing is to have in place the right reporting structures; sophisticated rolling budgets that ape the movement of the business dynamic and sensitivity analyses and “what if” models. Cost centres should be increased as much as reduced. If part of the market opens up to you unexpectedly then pour resources, intelligently, into exploiting it. Capture the opportunity while it presents itself and before another competitor, more fleet of foot than you, shuts the door.

Well-run businesses are rarely the product of one person’s efforts and no single individual (even you!) should be allowed to take decisions in isolation. Difficult cost-cutting decisions need strong central management, but buying into the consequences requires consensus. Before you deny resources to a department, ask the unit leaders to make the business case for budgets they have set themselves. A good business plan will provide the detailed picture of what the business should look like over the next five years. What needs to be cut should be dictated by its future shape not by the whims of one individual, even if that person happens to be the finance director.

No one gets rich by wasting cash, but we all know that it’s worth reading the instructions before you start tinkering with a very delicate machine. The answer to intelligent cost-cutting lies in developing a detailed knowledge of your business, its product and the marketplace. Learn how to tune the engine rather than just giving it a good kicking once a year.

Christopher Jenkins is senior partner of Wingrave Yeats, voted best medium-sized firm of 2003/4. He was also voted best business adviser of the year by the CBI in 2001/2.