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Seven business costs ready for the smashing board.

by Eamonn McMahon

In a blog post from January, The end of ‘easy’ money, I discussed the threat posed by rising inflation. That was before Putin sent the tanks into Ukraine and energy markets descended into a horror movie.

Thankfully, because of decades of government policy and forward-thinking, progressive engineering, UK small business has been ahead of the curve in reducing it’s energy consumption. Research by Centrica back in 2017 showed that over 60% of businesses had an energy saving plan and more recently, in 2021, the Federation of Small Businesses, issued a report detailing how more than 67% of SMEs have reduced their energy usage substantially.

Sigh of relief? Yes. Clear of danger? Absolutely Not. The combined effect of energy costs, now almost quadrupling vs 2020, higher interest rates and broad based high inflation will still hit very hard.

Small business has made great strides towards energy efficiency but there is a ultimately a limit to what is possible. Beyond energy, it is absolutely essential that every possible cost is explored for the chopping board before the winter – both literally and figuratively – arrives in full frost.

In this blog post, we assume businesses have already done everything they possibly can do to reduce their energy bills and instead we focus on seven routes to reducing other business costs so margins can be increased ahead of what will be a difficult couple of years.

Seven costs to smash first:

1. First of all, focus on insurance costs. Insurance is an essential risk mitigant for small business but excessive coverage and uncompetitive premium is proven to be one of the most wasteful components of spending. Often circumstances change in a business but coverage is renewed automatically and too often, a specialist insurance brokers will drive up cost with high commission and unnecessary products. So check to ensure the right coverage, calculate what you should expect to pay and compare different providers in the market. Small limited liability risks ( say smashing a business phone) can often be absorbed by the company.

2. Reduce financing costs. Short term overdraft use or reliance on ‘flexible’ finance lines is usually very expensive with APR rates stretching to 50% and beyond. Here at equipal we see companies apply for asset finance where a big portion of their operating margin is absorbed covering unnecessary interest or paying hefty finance fees. Often the short-term finance can be consolidated into longer term more competitive finance or just not the appropriate product for the company. Asset-backed finance is usually most competitive but often not fully explored.

3. Reassess short-term, expensive plugs like contractors, last minute equipment rentals, recruiters and agents if they are depended on for recurring needs. Instead, put in place long term solutions or let some marginal business go – after all, was it reasonably profitable when the extra costs incurred in delivering were considered?

4. Reduce unnecessary travel and make journeys more efficient. Train travel, petrol prices and air fares have become grossly more expensive these past few months. Travel less but deliver the same impact by ensuring you have the same amount of time. Remember to stay efficient and conserve energy like a swimmers do, so effectively, in the water.

5. Negotiate with landlords. Rent is a big cost for a lot of businesses who rely on equipment, particularly those in leisure, retail and healthcare. With the economy almost certainly going into recession later this year, it is worth having an honest conversation with your landlord and seeking a reduction. Perhaps offering up a longer-term commitment or offering to help to improve the property can help secure a lower rent.

6. Kill off unnecessary tech costs. How often have you signed up for a tech service on the back of a free trial period or a low entry cost only to see the cost build and build over the years. The average small business in the UK now spends close to 7% of its cost base on IT and tech services. Often there is a wasteful spending on services that are no longer been used or could be replaced by free or existing tech. Smash these wasted costs.

7. Cash in on waste. For the final suggestion, we take a back-to-front approach and suggest looking at monetising waste. Almost every business produces waste.. be it wasted raw material, wasted inventory, wasted packaging, wasted hot water or construction waste. Often once the ‘waste’ tag is applied, staff are only to keen to write off the waste and all value is forsaken. However there is usually some value in the waste for either recycling providers or others. List all the waste your business produces and then systematically explore what options might be available. There are many online resources to help with this.

These are our top seven areas to focus on in order to cut costs to help keep more hard earned cash in the hands of the business owners. Happy cost smashing! 🤜