No small business owner wants to waste money. Yet cost-cutting is often only implemented when times are tough. Instead, by establishing good cost-cutting habits on a daily, weekly, and monthly basis, you can curb financial waste across your business, helping it to weather peaks and troughs.
Here, we have enlisted experts to share their top tips for driving down costs – make sure you commit these money-saving habits for your business.
Tip 1: Start by identifying where resources are being wasted
"One of the biggest potential sources of wasted resources amongst small businesses is legacy contracts," says Mark O'Mahoney, senior corporate affairs manager at Be the Business. "All too often, if you question the terms of a particular supplier’s contract, it is simply ‘because it has always been done that way,'" he says.
Performing tasks offline is another source of waste. Research has shown that SMEs that take their business tasks online, such as payments and invoices can earn an average of £31,000 more every month than businesses that don’t.
Every business owner should have monthly management accounts, showing profit and loss and what has been spent across the whole business, says Mark Wright, founder of Climb Online. “It was only in reviewing our costs through management accounts that we realised we had two DocuSign accounts,” he says. This is money that could have been invested in business growth activities, such as marketing.
Tip 2: Stick to monthly tracking, and be consistent
Managing finances regularly gives you stronger financial control by enabling you to quickly spot any unnecessary or unexpected expenses and take immediate action. Making it a habit means creating an environment that makes it easier, such as using software or sticking to a routine.
“Knowing exactly what you have going out and coming into your business aids you in making important decisions to move the business forwards, such as investing in a new website or hiring new staff,” Wright says.
He checks all of his expenses every month and reviews cash in the bank every day. This gives him a "real-time picture" of expenditure and full visibility of his company's cash position, allowing him to spot any potential cash flow problems ahead of time.
Click here to find out how to quickly draw up a cash flow forecast for your business using our simple template.
Tip 3: Optimise supplier contract terms
Many business owners establish long-term relationships with suppliers but they fail to review the cost of the product or service on a consistent basis, says Wright.
"We have someone who is responsible for cost management, which involves contacting competitors of our key suppliers to obtain a quote or proposal for the same service," he says. "Where the cost is lower, we then have the opportunity to renegotiate, enabling us to keep our costs as lean as possible, without impacting the level of service or product quality received."
Tip 4: Automate and delegate
More than one-third of UK SMEs waste time every month trying to find out who spent money, where it was spent and why. Using an accounting platform to manage your finances can help.
At Climb, Wright’s company, senior and customer-facing employees have access to the company's online accounting platform to check clients have paid and invoices have been issued. In addition, each employee is responsible for completing their own expenses spreadsheet, which is then submitted to our accounts team on a monthly basis.
There are other ways technology can help keep your business cash flow – read our article here.
Tip 5: Categorise all your expenses
This may sound like a simple tip, but many businesses are leaving a percentage of company money spent as unreconciled and unidentified at the end of each month, making it hard to understand where the money is going.
Create a common set of expense categories for your business, or example, "client meetings" or "business travel". Review them every month and evaluate the amount spent under each category line by line. "This makes it clear to see if there is an overspend or even where you can invest more budget," says Wright.
Of course, your businesses expenses can change depending on the time of the year. Read our year-round guide to cutting expenses to learn when to scale up or down certain flexible expenses.
Tip 6: Treat data like your best friend
"If you want to reduce costs without reducing company performance, data is your best friend," says O'Mahoney. Data will tell you when your most expensive trading times are when your business is the most resource-intensive in terms of labour and inputs, and when you have cash needlessly tied up, he says.
For many small businesses, a small upfront investment in a simple Enterprise Resource Planning (ERP) or even a Customer Relationship Management (CRM) system can help you spot patterns in your business that will enable you to generate savings. The best ERP software depends on what industry you’re in, so it’s best to do your research, while CRM systems such as Hubspot and Insightly are popular amongst UK businesses.
An American Express® Business Card can help your money management efforts go further. You get up to 54 days to clear your balance, giving you the flexibility to spread costs and better manage your outgoings. Plus, you can earn Membership Rewards® points every time you spend.
Find out more about American Express Business Cards.
- 1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date.
- 2. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.