5 Cost Saving Ideas for Companies
5th February 2018
There’s no doubt that in today’s business climate, which is characterised by tougher competition and tighter margins, SMEs have to keep a firm eye on their costs as well as chasing growth.
However, you need to forget about finding one single direct cost that will radically change the cost structure of your company. And instead consider these 5 areas, where every business can cut costs, regardless of their stage of development or sector;
1. Parcel Delivery
For many companies, delivery costs range from 4 percent to over 30 percent of sales. These costs, substantial for most SMEs, rank second only to the cost of goods sold (purchase costs) that are about 50 percent to 60 percent of sales for the average manufacturing firm within the UK.
Value in courier services is primarily expressed in terms of time and place. Products and services have no value unless they are in the possession of the customers when (time) and where (place) they wish to consume/ use them. If little value can be added, it is questionable whether the activity should exist.
With this in mind, we highly recommend that you put a monetary value on your time. Hours spent ringing around or logging on to different courier systems for quotes may save you a few pounds here and there but you’ll have wasted valuable time where you could have been making money. And the same applies if your staff.
The right delivery company for the type of products you send out (as well as their destination) can be the difference between getting good courier rates and bad rates. It can also mean fewer damages and losses too. You can reduce the risk of loss or damage to your packages by using the correct grade of packaging for the product (redesigning your product packaging to come in under a certain weight break may also be appropriate) and by using a computer generated shipping label instead of manual one. But things can still go wrong so make sure you’ve got goods in transit insurance; not through the carrier but your own (which will work out much cheaper).
No single carrier will fit the bill all of the time, for every shipment you send, so you may want to use a third party that allows you to use a range of carriers, on multi carrier shipping software, whilst not diluting your ability to secure good shipping discounts. This also gives you back-ups during peaks in the transit networks (such as at Christmas).
Finally, don’t baulk at paying the money for a premium carrier that will satisfy your customers’ expectations. Your reputation is too important to be ruined by a particular part of your shipping process. If you think your product is a quality one then sometimes you need to invest a few pence more in making sure it turns up on time and in good condition. Cheap isn’t always the best and it doesn’t always save you the most money when it comes to whether or not a customer makes repeat orders.
2. Save on Business Energy
The main problem with your business energy is that whilst nearly all workers (92%) are concerned by the cost of energy in their home, less than half (47%) think about their employer's bills in the same way. Although, the majority of workers surveyed say they would do more to help if their actions were recognised.
Have a policy of switching lights off in empty rooms or invest in motion sensor lighting for corridors and washrooms etc. This alone can save you up to 15% on your energy bill and of course, utilise natural light wherever possible (turn your office lights off now; it’s probably not too dark). You can also upgrade lighting to energy efficient bulbs. Upgrading to a smart meter can be beneficial to some but you’ll need to speak with an impartial company first to ascertain whether it’s the right step for your business.
Don't heat empty rooms. You could also try reducing the thermostat temperature by 1⁰C. As a general rule, costs are increased by 8% - 10% for every ⁰C. And don’t have windows or doors open while the heating (or air-con) is on.
Turn off any equipment that will not be used for long periods of time and make sure all non-necessary equipment is turned off over night and at weekends. i.e. printers, computers etc. Also, regular maintenance and service of all energy consuming equipment and heating systems can ensure they run as efficiently as possible. And finally, when buying new equipment, check its energy consumption. Often buying something cheap can be a false economy in the long term when running costs are taken into account. Many SMEs are tempted by discounted or cheap shredders, monitors and printers but don’t realise that the overall running costs can often be quite high.
3. Cease buying! (briefly at least)
At every level of business there are normally accounts with suppliers that staff turn to without thinking too much about the cost.
Many people only focus on "large" spending and predominantly direct costs, the type with lots of £000's at the end and the smaller bills are seen as not worth bothering with. However, in most companies, indirect goods/services and other smaller "sundry" costs account for over 50% of expenditure. For example, stationery or janitorial supplies are everyday "small" costs, but due to their regularity they add up to a significant amount. This is where an expert eye analysing your purchase ledger and procurement can identify areas of "small" costs that when consolidated can yield substantial benefits to your business, areas you may not have even considered.
A typically over-used account is the stationery and business supplies provider. We’ve got some clients who have told us that they ban stationery purchases for 3 to 4 weeks per year, giving a saving of around 8-9%. It doesn’t cause a problem as staff always seem to find good amounts in their desk drawers and cabinets.
4. Outsource bad payers
Bad debt is a huge issue for companies of any size. Not only does it take up staff time in chasing unpaid bills but it can cause businesses to incur interest charges for dipping into overdraft facilities and so can have a knock-on effect on their credit rating too.
It goes without saying that all companies should do due diligence on any new customer, but no matter how careful a business is, unpaid bills are likely to be a problem from time to time. So The majority of commercial companies have some late or bad debt unfortunately.
Outsourcing to a debt recovery company may ensure prompt debt collection, which reduces your trade debt, improves your cash flow and lets you get on with your business. Some will also provide their service for free for all your Business-to-Business debts (costs are often added onto a debtor’s invoice as covered by the European Directive 2011/7/EU) meaning that no matter what the debt is, they only get paid when you get paid.
Also, have a clear set of terms and conditions. This makes it considerably easier to chase debtors. Remember to include a clause stating that you continue to own the goods until they have been paid for and one requiring customers to draw your attention to any issues or problems immediately. You can also set credit limits based on a prospect’s credit rating before supplying your product or service which can avoid a lot of problems as does setting lower credit limits for new customers.
Always double check if you need a purchase order number for your invoice and find out who it needs to go to (the buyer or accounts). Always invoice promptly including all the details needed for the customer (e.g. purchase order, addresses, your bank details for payment, what was delivered etc.). It is worth finding out if the accounts department need the invoice by a certain date to make the weekly or monthly payment run.
You should always deal with any disputes quickly. Companies will not even look at paying you until any disputes have been resolved. Have, communicate and execute a clear credit control policy and this should cover in detail the earlier steps and includes what happens if the payment is late. Your first step should always be to call the buyer to find out what is happening. Your policy must cover what to do if the response is a clear warning signal such as “We have a cash flow issue”.
5. Outsource in General
We have a mantra at Procuright; if it makes you money keep it in house, if it costs you money....... outsource! Procurement outsourcing needn't be something to be mistrustful of or even costly. The majority of us already outsource in some way - accountants, solicitors or contract cleaners etc.
Outsourced procurement services can offer a massive opportunity for a business to utilise a specific area of expertise that is not needed in a typical businesses day to day running. And with it, you’re likely to get a better deal too. This could include water audits, waste and recycling cost saving, enhancing your foreign exchange and reviewing your business telecoms.
Through outsourcing non-profit making functions you will find more time to focus on the aspects that will make you money. Outsourcing will not only realise a direct saving, but also free up valuable hours for you and your team to fully focus attention on the money making aspects of the business.
"Outsourced procurement services can offer a massive opportunity for a business to utilise a specific area of expertise that is not needed in a typical businesses day to day running. And with it, you're likely to get a better deal too."