Cut your operating costs

You may be able to improve your business' profitability and efficiency by cutting costs. Look at areas such as energy efficiency, procurement and finance facilities.

Guide

2 min read

1. Overview

Cutting costs can bring immediate savings to your business. There are a number of areas where you can look to cut costs, including your materials, energy usage and in-house systems and applications.

2. How to monitor and measure costs

To control your costs, you need a good understanding of where they arise in your business and how to assess them against your budget. There are many ways to measure and monitor your costs:

  • Benchmarking - a benchmarking system helps track costs over time and against similar businesses.
  • Key performance indicators (KPIs) - KPIs enable you to objectively measure expenditure against budgets.
  • Activity-based costing - can help you determine the real cost of specific business activities by attributing proportions of all your costs (eg payroll, premises or raw materials) to specific business activities.

Regularly review costs and run periodic checks to ensure that you have accurate data about costs and expenditure.

3. How to cut costs

Cutting costs is everyone's responsibility, so create a culture of cost awareness among your staff and management team.

Review your finance facilities, especially loans and overdrafts, to ensure they are on the best available terms.

Check your travel and subsistence policies for opportunities to be more efficient. The Energy Saving Trust has advice for businesses on how to cut travel costs.

If you're a manufacturer, assess whether you can cut waste and lower the costs of your materials, or streamline production processes.

Outsourcing some of your business functions might also help you cut costs.

Go green - reduce fuel and energy consumption

You can reduce energy bills by:

  • turning off lights and computers when you leave the office
  • switching to energy-efficient lighting and office equipment
  • using premises efficiently - don't heat or light unoccupied space
  • using a smart meter to show where you're using most energy
  • investing in fuel-efficient vehicles.

Make more use of online tools

You could save money by replacing in-house systems and office applications with online services and cloud computing, which also allows data to be automatically backed-up off site. As a result, you could eliminate expensive servers, software and back-up systems.

These options can create additional savings by making it easier for people to share information and work efficiently away from the office.

You could consider using:

  • an online accounting system to replace your PC-based system
  • an online customer relationship management system
  • web-based services such as Google Docs to manage emails and documents
  • cloud storage services such as Dropbox to store files

Due to advances in technology, you may be able to bring some services in-house, such as updating and managing your website and purchasing air travel and accommodation.

You should also think about whether tasks that you currently do in-house could be handled more efficiently by others. Things you could outsource include:

  • order processing, warehousing and delivery to firms like DHL or Amazon.
  • project work using online contracting services such as odesk.com.

Keep your procurement costs in check

Regularly review your arrangements with suppliers to check you're getting the best deal. Shop around for the best deals on utilities and consumables.

You should also identify areas of waste or under-utilisation. You could:

  • consider using free open-source software
  • replace complex IT systems with cheaper, lower-end alternatives
  • avoid over-ordering office consumables, such as stationery

The Energy Saving Trust website has information on grants and awards that can help make your business more energy efficient.

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