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Cut Your Business Costs

By: Kevin Watson MSc - Updated: 14 Oct 2010 | comments*Discuss
Business Entrepreneurs Reduce Business

Investors like to know that entrepreneurs treat money with respect. Successful entrepreneurs therefore manage the costs of a business as carefully as possible. To achieve this, they take time to consider every cost-cutting opportunity that presents itself.

Staff Productivity

Limiting overtime and reducing staff hours is certainly one way of cutting costs but this can easily backfire. Staff usually resent such blatant methods of restricting their incomes, and productivity suffers as a result.

Instead, an entrepreneur must increase productivity rather than cut the money spent on the wages bill. An analysis of the strengths and weaknesses of employee working methods soon highlights areas where an entrepreneur can save staff time and boost efficiency. Just a few hours examining the way staff work can make a substantial difference to a company.

Review and Reduce Overheads

Every entrepreneur concerned about finance should review the overheads of a business frequently. These overheads come in two forms, fixed and variable.

Entrepreneurs may have to live with such fixed overheads as rent, business rates and water rates. Nonetheless, they should keep a close eye on them and negotiate better terms if a chance arises.

Variable overheads are a different matter. It’s often possible to drive down the cost of items such as power, IT, raw materials, and sub-contractor services by ensuring a rigorous but fair competitive environment. After all, if suppliers want an entrepreneur’s business, they must be prepared to give their best prices.

Among further ideas to reduce overheads are leasing as opposed to buying equipment, and renting out spare business space (if the landlord or mortgage company agree). Leasing can free up capital, and rental income can improve cash flow.

General Cost Management

Depending on the business, cost management can become complicated. It’s nonetheless an invaluable exercise, and entrepreneurs may find it useful to employ specialist accountants to assist.

Activity-based costing, for example, establishes the actual rather than assumed cost of a business process. At the end of an activity-based costing exercise, an entrepreneur knows precisely what a particular business operation costs in terms of every relevant fixed and variable overhead. These figures paint clear financial pictures that inform decisions about the effective employment of resources.

Energy Efficiency

Even if an entrepreneur has settled on a satisfactory deal with an energy company, it’s possible to reduce the regular gas and electricity bills. One government-backed estimate states that businesses can save up to 20% on their energy costs.

  • The average computer costs £50 a year if left running day and night: switching it off when the office closes cuts this cost to £15.
  • Energy efficient bulbs can slash up to 75% off the bill for lighting.
  • Dropping the office temperature by one degree reduces the heating charge by up to 8%.
  • Keeping heating equipment regularly maintained saves a further 10%.

Reduce Business Costs and Increase Profitability

Entrepreneurs who reduce business costs help to keep a company afloat. They also increase the chances of greater profits, which in turn can develop a business if reinvested. Cost management is therefore good for finance and good for the future.

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