With the first green shoots emerging from the ground, if not the economy, it’s time to give your business the once over and trim any unnecessary costs.
Despite the recession, we are still a growing business,” says Howard Sarna, chief executive officer of outsourcing company Oceans Connect. “What we’ve been asking ourselves is how we can continue to grow.”
It’s a question that is no doubt echoing in meeting rooms across the country. No two businesses experience an economic downturn in quite the same way. In many cases, the impact is being felt in the form of falling order books. Elsewhere, the problem is not necessarily declining sales, but cashflow. Even if demand is holding up, customers are paying later and want cheaper goods and services, so margins are being squeezed. Against this backdrop, it’s more important than ever to ensure your business is match fit. So, as we say goodbye to winter and hello to spring, it’s time to spruce up your company.
- CONDUCT A REVIEW
According to Andy Way, of management consultancy Baringa, your first step is to look at where your business is today, identifying where savings can be made and operational efficiencies introduced. “Look at the situation now and consider how it should look in the future,” he says. This could involve either an in-house review or a more comprehensive audit exercise with outside consultants. While the second approach is more expensive, it delivers both expertise and a dispassionate perspective. “You can do it internally,” says Way. “But you need to approach the task as independently as possible.”
- CUT SUPPLY COSTS
One thing your review should certainly look at is what you pay your suppliers. “You should be examining your whole supply chain and shaving costs from end to end,” says Peter Lunio, a director at accountancy firm Baker Tilly. That may mean changing suppliers, but you should also negotiate with existing trading partners. For instance, you can leverage your company’s power by cutting back on the number of purchasing parties within your company. What this will enable you to do is keep a closer check on what is being bought (and at what price), while also putting you in a stronger position to secure better deals. Put simply, if you’re purchasing strategically rather than on an ad-hoc basis, suppliers may be more willing to offer discounts.
- REDUCE IN-HOUSE SPENDING
Having considered suppliers, look internally, aiming to cut costs in major areas of spending, such as IT and transport. For instance, when it comes to company cars, new legislation means that leasing or buying low-emission vehicles can save a lot in tax. Meanwhile, closer management of how you transport goods and people will enable you to reduce fuel costs. Be careful, though, as you can spend a lot of time pursuing cost savings that ultimately deliver very little. Chris Barling, chief executive officer of e-commerce software company Actinic, recommends that you should concentrate on areas where you have most to gain. “Focus in on the areas of greatest cost,” he stresses. “There’s no point in saving 10% of £3,000 if with the same time and effort you could save 5% of £100,000.”
- TAKE CONTROL OF CASHFLOW
When economic times are good, it’s easy to forget the importance of cashflow. Lunio recommends that all companies should tighten their credit controls. In the long term, that means putting processes in place to ensure bills get paid on time, but in the short term he argues that business owners should take a hands-on approach. “Don’t leave it to the credit control clerk to chase invoices,” he says. “Be proactive and get involved with managing your receivables.”
- DON’T GET STUCK WITH STOCK
Equally, you can improve your cash situation by tightening up inventory management. “I visited one firm recently that had an £18m turnover and £10m in stock,” says Lunio. “That is too much. Businesses should be keeping their inventory to a minimum.” Overstocking hits cashflow directly, because you’re paying upfront for goods that could take months or years to sell. At the same time, you run the risk of carrying stock that will remain unwanted. Lunio recommends that companies with high levels of inventory should take steps to reduce it. Typically, this will mean buying less from suppliers, while also selling existing stock as quickly as possible.
- MONITOR STAFF LEVELS
The downturn is already having a huge impact on staff numbers, as companies seek to cut costs by axing employees. But even in the good times you should regularly review staff to ensure that you have the balance right between cost-effectiveness and the ability to deliver a good service to customers. To begin with, look at whether everyone is being used efficiently. As Way points out, it may be possible to identify jobs where much of the work is duplicated. “You may have a number of departments in which each manager has their own PA,” he says. “When you look at it more closely, it may be possible to share the PA role.”
- INTRODUCE EFFICIENT PROCESSES
Even if you don’t plan or need to cut back on staff, investing in more efficient processes will make your company fitter, by enabling employees to do more, without necessarily working harder. Reviewing your business will help you identify areas that could be improved. Look for areas where work is being duplicated or where there are bottlenecks, such as delays in sending out invoices as a result of inefficient document processing. Once you’ve identified the problem areas, you need to consider more efficient ways of working. “You should document all your processes,” advises Sarna. “This will give you a better handle on what is going on. It will also make it easier to transfer some of your functions to third parties should you decide to outsource."
- CONSIDER OUTSOURCING
A huge number of business processes can be outsourced and potentially there are some clear wins. Outsourcing is generally cheaper than keeping functions in-house, as your outsource supplier will be able to benefit from economies of scale. Crucially, there will also be more financial flexibility. If your need for human resources increases, you pay more; if it decreases the price falls. Thus a fixed cost becomes a flexible one. The outsource supplier may also provide a more expert service than you could in house. However, you do have to allocate resources to manage the relationship with your outsource supplier.
- USE CHEAPER LOCATIONS
Perhaps unsurprisingly for a business outsourcing company, Oceans Connect has recently moved some its own processes offshore to cheaper locations. Any company with more than one centre in the UK has the option of cutting costs by moving staff to a cheaper area. “You see the BBC doing that by moving jobs to Manchester. Relocation is something that all companies can consider,” says Sarna. Even if you aren’t in a position to move to another city, it’s worth looking at your premises and deciding if you are getting value for money. In the current property market, rents are falling, so it’s worth shopping around for cheaper options.
- LOOK AFTER KEY CLIENTS
One by-product of the recession is that many companies are pushing back payment times and negotiating hard on price. It can be tough negotiating with a major client, but if you are a strategically important supplier, you may be able to resist your margins being squeezed or having payments delayed. “You can negotiate, but it’s often best to go to those within the organisation who use and value your product rather than the purchasing managers,” says Lunio. By getting closer to your customers in this way, you put yourself in a strong position to sell more when the economic storm clouds clear.