Cutting Costs

saving moneyTo any business saving money is the same as making money. When talking to my clients they all want to increase their turnover and profits, but only look to do this by increasing their prices or by gaining more customers. These are valid ways of increasing profits, but it could be far easier just to cut their overheads.

A new small business which has a turnover of £50k per annum may have overheads of 25k and thus a profit of 25k. If the business owners cut its overheads by 10% they would save £2500. In order to generate £2500 profit, this business would have to generate £5000 worth of sales.

The business now has 3 options; increase their prices by 10%, increase their sales by 10% or decrease their overheads by 10%.

In this section I will be looking at how businesses can decrease their overheads to maximise their profits. I find the best time to do this is at the end of a financial year, when the business has a comprehensive list of all the costs for that year. I would advise making a list of all the expenses starting with the largest amount, set a target and try to decrease all of these costs.

Utilities
These are costs such as water, electricity, telephone etc. I will use a mobile phone as an example, as this was a cost I recently helped a client to reduce. Whilst looking through a client’s accounts I noticed a mobile bill of £90.00 per month. I asked the client if this was a normal amount for their telephone bill, which to my horror, they replied that this was a low amount. For a business turning over £50k, £1800 on mobile bills is a major expense. Remember to fund this bill the business would have to generate £3600!

I asked some more details about the phone service and ascertained the exact amount of “free” minutes per month and the amount of line rental, which sounded a reasonable deal. I then asked her how many minutes and texts per month she actually needed and was met with silence

This is not uncommon, as utility providers love telling you how much money you are saving, but make it harder for you to tell how much you are actually using. With free minutes, free texts, half price line rental and cashback offers, it’s very difficult to compare a like for like product.

The first thing to do with any product is decide on what you want the product for and how it will be used. We looked at several phone bills and it was apparent that she was greatly exceeding the monthly “free” limits. We then looked at several of her monthly bills and calculated the actual amount of units she used in an average month.

We now had a fixed product to compare, 700 minutes 300 texts. All we had to do now was contact the mobile phone suppliers and find the cheapest line rental offering the package we needed.

We manage to find a supplier who met all of her needs for £35.00 per month, a saving of £55.00 per month or £660.00 per year. This may not sound much, but she would have to take an extra £1320.00 in sales to cover this amount! The exercise took 3 hours to complete, not a bad saving for 3 hours work.

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