Although inflation rates in Ireland are finally starting to fall, it’s still a relatively high inflation economy which poses challenges for business’s and for your customers. This article looks at ways you can cut your costs and increase your profits, despite the economic environment.
A slash and burn approach could do more harm than good, when it comes to cutting costs. First, you need to analyse what you are spending and where/how you are spending it. Do your financial records easily offer this information in an accessible way, so that you can do an effective analysis?
If not, then we can help to improve and implement top class reporting systems. You should be easily able to get up to date relevant reports, giving solid useful information. This will allow you to assess what needs to be reviewed.
Detailed financial data on its own may not be enough. You may also want to review how effective various departments or business activities are, how individual staff or functions are performing, and whether your core sales model is maximised.
Finally, don’t forget to review your Gross Profit, Wages and other margins, as these will be important KPI’s.
The second thing you need to consider before you take cost-cutting measures is your strategic business plan and goals. For example, cutting the research budget on your next big innovation could jeopardise your company’s future. Or slashing the marketing budget outright could have a negative impact on sales. Don’t ignore the relationship between your income and necessary costs, as income usually relies on having those costs.
Again, this is where accurate and detailed information comes in. You might cut parts of the marketing budget that aren’t yielding results and maintain marketing activities that are working well or adjust the proportions and spend to generate further income.
One way to save money without making cuts is to review your suppliers. This includes energy, phone and broadband companies, insurance providers, and outside contractors. When was the last time you shopped around for the best prices on each of these? Ask suppliers for discounts for prompt(er) payment. These can usually be achieved easily.
Is your business operating in a tax-efficient manner? Talk to us about ways to properly minimise your tax charges and costs. Are you claiming everything you are entitled to? Are you paying tax you can legitimately not pay? We can help with that.
Make sure you are getting paid on time, so review your credit terms. Slow paying customers often may not be worth having, so don’t be afraid to review both your customers business, and their performance. It’s also worth negotiating longer credit periods with your own suppliers.
By the time you get to this point, you may have less to cut than you first feared. Key areas to look at are:
Work off accurate information.
Get rid of anything not strictly necessary.
Be ruthless – it’s easy to add again if needed.
Ask for discounts, and don’t be afraid to negotiate.
Don’t lose sight of the importance of some costs, so don’t cut too far without considering effectiveness.
Remember, if you want a 10% improvement, that can come from both a 5% reduction in costs, and a 5% increase in income. So also review your lower margin business to see what you can improve it by.
Review all credit costs, and pay off debt sooner, if possible, to save on interest charges.
Review your financing costs and seek new quotes.
Use Zero Base Budgeting. Review costs based on a “what would I pay for that item/service/job today if I re-bought, re-contracted, or re-hired it today” basis. In other words, if it was a “zero” cost today, what’s the right cost for that item now.
If you need help with a review, or would like advice on cutting overheads, or growing your profits, just call us on 01-6311400, or email contact@stratafinancial.ie. We’d be delighted to help.