Cost Reduction

Business cost reduction: a holistic approach

The UK is hopefully entering a “post-pandemic” period and businesses are now adapting their models to maximise trade.

The retail sector is working with councils around the country on new outdoor spaces becoming permanent; offices are closing and flexible working practices are being adopted; the decline of cash payments is accelerating; and an employee health strategy is now business critical.

Many have had the time to assess their business and think of new ways to be more efficient.

This period can be seen as a fresh start for business owners in the UK and there has never been a better time to take a holistic view of business costs.

In this blog we will outline a guiding process to help you identify and address your business’ variable costs.

The starting point: Define your outgoings

You need to know what you’re paying for.  There will be some obvious costs such as your staffing and your cost of delivering your service, such as raw materials, for example.

Equally, there are costs that you simply don’t want to think about and are not front of mind for a busy business owner.

Below we list some general suggestions applicable to most businesses with premises.  Check your business’ bank statement and work out your monthly outgoings in these areas where applicable.

Your account will likely throw up some new costs you would otherwise have forgotten, too.

Look out for:

  • Your premises: rent, payments on buildings, car parking expenses, security measures, waste disposal processes
  • Your utilities: electricity, gas, water, internet access (broadband) and telecoms contracts
  • Your taxes: on your revenue and from your local authority
  • Subscriptions: your electronic payment contract, what software your business uses, any media subscriptions you monitor, brewery/food contracts for hospitality, memberships to trade bodies and umbrella organisations, any retainers with agencies or service providers you use such as server space rental or a marketing/recruitment agency
  • Your protection: your insurance, your fire safety processes, your legal spend (if external)
  • Your equipment: office furniture and essentials such as printers and IT, your air conditioning units
  • Specialisms: costs associated with your business’ area of operation, such as manufacturing equipment payments, machinery, ovens and cookers for restaurants

Categorise what you can control

From the above, categorise them into those you are responsible for and those you aren’t.  For example, your rent, mortgage payments and car park payments are probably concrete, unless you have a very understanding and flexible landlord.  Your tax rate is pretty nailed-on too, unfortunately.

However, your utilities, equipment rental, subscriptions, and other contract-based items can all be categorised as variable.

Now you need to decide on which of those you can address.  This is similar to the process that we follow with our customers at Great Annual Savings Group (GAS).

We have a commonly used phrase at GAS, which we have used throughout the pandemic and has been a guiding principle for the rapid growth of our business: “focus on what you can control”.

We urge our customers to do the same and this process is a great way of making that start.

Create a hitlist

These will be your variable costs and making savings against these costs is the foundation on which GAS was built.

Create a list of the area; the supplier; the amount you use; the contract start date; the contract end date; and the notice period in your T&Cs.

See the example below (all details are fictional):

Cost base Supplier Annual spend Account ID CSD CED Notice Details
Waste collection Biffa £3,000 WBI123 02/01/2021 01/01/2022 3mths Twice weekly collection, 3x containers and one recycling at 8am

Interact with the market

These B2B variable costs are all very competitive marketplaces, which savvy business owners can use to their advantage.

You can now tender these services out to multiple suppliers and get the best deal possible for your businesses.  A quick internet search for each sector will bring up the industry leaders.

NOTE:

It’s tempting to use a price comparison website.  This is useful to find out who the players in each market are.  However, it is rare they can give you a fully tailored price due to all businesses being different.  The price quoted from comparison websites is usually an indicator.  Read our blog on price comparison websites for more.

NOTE 2:

Cheapest is not always best.  For example, in the energy market, the cheapest unit rate may not fulfil all of your needs.  These could include a requirement for green energy, or the supplier may not offer credit for your sector, or there may be associated costs as part of your contract.  Always approach these variable markets with a mindset to attain the BEST deal for your business, not necessarily the CHEAPEST.  Of course, price will still be a major part in what is defined as the “best”, but it should not be the only factor.  For example, see the current news in the gas market, which is seeing a number of smaller suppliers go bust.  Who you are working with is important.

Think different

Do you need exactly the service you are currently using?  Could it be made more efficient and cheaper?

A great example from a Great Annual Savings Group (GAS) client concerned their payment services.  They did not have any point-of-sale contact with their customers, however they took payments many times per day over the phone for their products.  They did this via a card reading terminal and simply keyed in the details relayed to them on the call.

GAS suggested the installation of a fully virtual payment solution, saving them hundreds of pounds per month on payment machine rentals.  This was taken up and was not only cheaper, but faster too.

Play the game

Another reason you should carry out this task individually for each service is because this is the B2B world and you can barter.  Don’t accept the first price you see and make sure you challenge the suppliers on why they are the best for you.  Play them off against each other with quotes and use one to knock the others down.

After working your way through your hitlist, we are confident you will have made inroads and savings.

Perhaps one of your services is increasing in cost in line with inflation or market conditions.  That’s all the more reason to investigate the others to offset rises.

The catch and the way around it

The catch here is that you’re a busy professional and this process is time consuming and will distract you from the day job.

At GAS, we have saved businesses millions of pounds in efficiencies over our nine operating years by following this process.

We do not currently charge for our service, because we make revenue from supplier commissions.

We would be happy to carry out a business costs audit on your outgoings and help you reduce your outgoings across our 13 service areas.  We conduct 300 holistic business cost audits per month.

Energy Procurement

Water Procurement
Energy Management Telecoms
Insurance Merchant Services
EV Charging Points Waste
Fire Protection Security
HVAC R&D Tax Credit Claims
Liquid Petroleum Gas provision

GAS possesses the UK B2B market’s widest range of cost reduction services, as defined by Cornwall Insight.  So we’ve had plenty of opportunities and know what to look for.  Take a look at some of our case studies.

Get in touch for a free, no-obligation audit today and take a holistic overview of your business costs.

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Paul JohnsonGroup Financial Director

Paul Johnson is very much a home-grown talent.

He joined Great Annual Savings Group in its infancy, fresh from a youth career as a professional footballer with Hartlepool United.  He quickly established a reputation within the business and aced all required accountancy qualifications in the space of four years to become the Group’s Management Accountant.

Several successful projects later, Paul was promoted to Head of Finance.  When the former FD left GAS, he took on the mantle of the business’ most senior finance professional; boasting a string of incredible achievements all under the age of 30.

Quote:

“I have witnessed phenomenal growth at the Group over the many years I’ve worked here and I’m looking forward to guiding the Group into an exciting new chapter.”

Interesting fact:

Paul made his professional debut for Hartlepool United against Bournemouth in the Football League.  Some say Danny Ings still resides in his pocket to this day.

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