Need to cut overheads quickly but not sure where to start? A new wave of technology can help you attack hidden costs, improve efficiency and boost your bottom line
Cost management is vital for small companies but can be a difficult discipline to master. When profits dip and business slows, some SMEs rush in to slash costs – but cutting in the wrong place can ultimately hurt the business.
Small-business overheads have risen by 23 per cent since 2005, according to the Business Cost Index, compiled by the Centre for Economics and Business Research and price comparison site Make It Cheaper. Research found that more than half of small-business owners fear for the survival of their firm, 67 per cent have seen profit margins hit by rising costs, nearly half have been forced to increase prices and 22 per cent have shed staff.
Shaa Wasmund, founder of resources network Smarta.com, concedes that managing costs is challenging for small firms. "You have less negotiating power when you are small," she explains. "The biggest companies with the biggest orders usually get the best deals."
Thankfully, new technology is making
it easier for SMEs to trim budgets without compromising their efficiency.
How technology helps
Wasmund cites technology as the biggest positive change to cost management. "The introduction of cloud services has made it easier to keep costs down," she says. She understands the difficulties small-business owners face when they start out, so Smarta has launched a suite of services for SMEs offering email and website services, financial software, business planning and financial documents.
Christian Lanng, chief executive of
e-invoicing provider Tradeshift, agrees
that technology is making it easier for businesses to manage costs. "If you go back two or three years most cost-management focus was on predicting the future and then counting the cost accordingly. Where we are going is about knowing when you get
an invoice and payment, and being able to more easily predict your cashflow and
your cost in different areas," he says. "Technology delivers much better and precise data."
Tradeshift allows small businesses to create and receive invoices as well as communicate with contacts for free. "If you're a small company and you send an invoice to the NHS, you'll be able to see when the NHS receives it, when they accept it and when they pay it. You get very clear transparency in terms of when you can expect the money. I think most cost-cutting in small companies is actually about planning for your cashflow," says Lanng.
Financial health
Make It Cheaper says that SME owners typically spend less than two-and-a-half hours a week on cost management. They simply can't find the time to shop around for the best deals and fail to switch suppliers regularly. The comparison site's managing director Jonathan Elliott says customers estimate that ringing around trying to secure a good deal would take a half or whole day, diverting attention away from the business.
The good news is that there are more ways than ever for small-business owners to slash costs while technology makes it easier for directors to keep on top of things.
There is a tendency for businesses to focus on generating sales rather than save money. "The thing they forget is that a well-constructed business is not merely the creation of more and more revenue," says entrepreneur Doug Richard, who has teamed up with Make It Cheaper to launch Business Fit, a kind of online gym where SMEs can assess their financial health.
"We wanted to help shift their attention from trying to drive revenue to saving money. A lot of business owners don't think about the fact that £1 not spent is a far larger pound than £1 earned," he says. "By creating a website of tips, tricks, calculators and tools we thought we could help even the playing field a bit."
On the Business Fit portal users can complete a questionnaire to assess the financial health of the business and find areas where it can improve.
Slashing fuel bills
Pub owner Richard Coltart struggled with bills after he took on a new property, but with the help of Make It Cheaper he has saved just under £20,000 on utilities, insurance, banking and phones. "We are high users of electricity, gas and water as are all pubs, restaurants, hotels and bars," he says. "This is a huge amount to save. In real terms it is probably about £120,000 and that translates to 30,000 pints."
Cost management is not something he has paid much attention to in the past. "You don't have time when you take on new businesses; we had refurbishments and had to recruit from scratch. Would I have gone out to 20 different utility companies and got the best price? I would rather stick needles in my eyes," he says.
But small-business owners should check they are getting the best deals on gas and electricity, insists Elliott. "Energy costs have gone up enormously over the last five years and insurance is rocketing at a similar rate," he says. He estimates that Make It Cheaper saves customers 25 to 30 per cent on energy bills.
Strength in numbers
Another service that has been launched to help start-ups and small businesses is group-buying site SME Discounts. Founder Andries Smit says he was inspired by consumer site Groupon.
"The aim of SME Discounts is simple. We want to negotiate great deals on quality products and services, including software, accounting services and social media for SMEs," Smit says. "A corporation like Microsoft buys hardware in bulk and is able to buy items far cheaper than a small business. But if everybody comes together, it is easier to negotiate discounts."
Coltart says shopping around is vital. "As a small business we have to. There isn't much room for manoeuvre unless you are lucky or doing really well and the sales are flying along, which I think is not the case for most in this environment. You have got to find your savings elsewhere."
1 Dedicate time to assess costs and make sure you get the best deals. Put time aside to make sure you give your business the opportunity to save money.
2 Scrutinise and justify all outgoings. Do a proper business plan and understand what is earning revenue and what isn't. Remove things that aren't adding value.
3 Use as much of your technology in the cloud as you can.
4 Ensure your fixed costs such as office space are flexible, allowing you to scale up or down depending on the stage of your business.
