Tips for Reducing Business Costs
If you own your own company, you will inevitably seek to bring in more business and increase revenues in order to boost your bottom line profit. However, equally crucial to final profit are your business costs. If you can cut down on unnecessary expenses and implement some simple cost-cutting strategies, you will make that all important difference and give yourself an edge over your competitors. Here are 10 basic ideas on potential cost-saving techniques: 1) Energy Costs- Investing in energy-saving office equipment has two key benefits. Firstly, you will pay less on future energy bills due to the more efficient nature of the appliances. And secondly, many energy efficient technologies are 100% tax deductible in the year of purchase according to the Enhanced Capital Allowance (ACA) scheme. You can write off the entire cost of energy saving appliances against profits, including: boilers; combined heat and power (CHP); lighting; pipe work insulation; and refrigeration. 2) Telephone and Internet Costs- Telephone and internet costs can be a significant overhead cost for some businesses. Landlines are expensive so make sure you don’t use them unnecessarily. Joint plans for internet and phone can help to save costs. Furthermore, consider automated phone attendants in order to save on staff costs, BUT make sure you don’t compromise your client service with long waits on hold. 3) Cash Flow- This is arguably the most important factor in the health of your business. In order to keep a healthy cash flow you should be wary of extending credit to your customers. You could perhaps offer small discounts for early payments and consider charging penalties for late payments (although this must be carefully outlined in contracts/invoices etc.). 4) Online Marketing- Rather than overspending on unnecessary advertising, make the most of the new trends towards online marketing through social media such as Facebook and Twitter. This is an extremely easy and inexpensive way to save money, whilst still increasing brand awareness. 5) Work From Home- Depending on the nature of your business it is certainly worth considering working from home. Aside from an obvious increase in flexibility, you will also be saving considerably on costs from commuting and maintaining an office. Furthermore, a proportion of your home expenses can be deducted from your taxable profits. Tax savings can be made on a range of household expenses, including: a proportion of utilities bills; repairs and maintenance directly related to your business space; mortgage interest; council tax; and rent. 6) Bulk Buying- As a business owner you are entitled to an account with wholesalers such as Costco or Booker, amongst others. You should certainly take advantage of bulk buying discounts. However, in order to maximise cost savings, you must consider whether buying in bulk is cost effective in each case for your business. For example, just because the cost per unit of pens, for example, is lower than an individual pen, this doesn’t necessarily mean you should purchase 1000 pens. Small businesses should only buy what they need in order to save costs and avoid waste. 7) Group Buying- Joining buying groups of multiple small businesses can greatly expand the buying power of smaller companies. The Forum of Private Business recently teamed up with Buying Support Agency (BSA) to offer group buying discounts in order to vastly reduce costs on routine items for small businesses. Equally, SME Discounts is a group-buying site offering substantial (up to 90%) discounts on business products such as marketing, operations, IT and B2B products and services. 8) Buy Second-hand- Office equipment can easily be bought second-hand as other businesses and organisations look to sell. Assuming you are careful, there are some great deals to be had for equipment that is as good as new and this can really help to reduce the costs of setting up an office. 9) Inventory- Try not to hold an excessive amount of inventory if you are unlikely to shift it in the short term. Inventory that is being sold is essentially just company money sitting on the shelf and this greatly impacts on your bottom line. Be nimble with your stock levels to react to consumer demand but don’t overstock your business as this cash could be spent more effectively elsewhere. 10) Staff Costs- Employee wages are often the most significant cost to a small business. Employees are in most cases crucial to the success of your business so you don’t want to alienate them by cutting wages. However, you may consider reducing hours slightly in unproductive areas of the business. In addition, look for interns or inexperienced hires that can perform certain tasks for a lower fee, or nothing at all. Finally, consider outsourcing certain areas of your business in order to save on time and cost. Payroll, for example, is an area that doesn’t add much value to your business and can be time consuming, so it may be wise to subcontract such an activity. By Tom Hoadley at Tax Affinity. Tax Affinity Accountants are experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Driving Sales in the Current Economic Climate
The frenzy of the bullish market looked unstoppable to many people; even the so called professionals of the financial market were caught up in the typhoon of prosperity. The share market was booming, business profits were skyrocketing, property prices were ever increasing and consumer spending was at an all time high. However, the path to everlasting wealth was halted by the global financial crisis of 2007-08. The crisis threatened the collapse of major financial institutions, the bailout of banks by national governments and the largest slump in the stock markets to date. The effects resulted in a global recession that lasted till 2012. Things have started to look better in 2013. There has been high confidence in stock markets, the housing market has been growing at a healthy rate and people are beginning to spend again. It is probably safe to say that we are currently in a boom. But how can you as a small business benefit from this? Here are a few points you can consider to boost your sales in the current economic climate. Tapping into New Markets You may begin noticing changes in your customer base. Customers that your service or product may not usually target for may start to appear due to changes in their economic circumstances. Goods which are income elastic (sensitive to changes in income) will usually see a rise in demand when people have more disposable income. Consumers may switch to more premium versions of a product when they can afford to do so. Therefore it is important for businesses to react to such changes in their customer base and expand their marketing to cover new markets. Make sure your product is of good quality as consumers may switch to alternatives if they consider your product to be inferior. Providing the Best Customer Service With new faces showing up to your business at a daily basis you may start to think that giving good customer service will not matter much. Unfortunately, history shows that although economic booms can last a while; they do not last forever. It is crucial that the standard of customer service remains high as it is the returning customers that will keep your business above the water when times become tough again. And when the times are good, it can only have a positive effect on sales. Bringing in Talented People Some businesses may struggle to cope with the surge in demand and begin to crumble under pressure. Costs will rise significantly in order to meet with unexpected demand, short-term liabilities may be unmet because of poor cash flow management and staff may feel overburdened due to a lack of training or experience in handling the new unforeseen problems. It is important to know the limitations of your workforce and accept the fact that the business may be growing at a rate that you can’t keep up. There are several ways to tackle these issues. You can hire staffs that are more experienced at working in a fast-paced environment. Another way is to have your personal accountants offer you advice on how to manage your business more efficiently and keep your costs down. Having access to professional guidance provides you the necessary knowledge for success. Cheap Borrowing Take advantage of cheap money from banks. Interest rates are generally lower and the terms to borrowing are more flexible during times of economic growth. This means that it is usually the most optimal time to borrow money and expand your business. Whether that may be to fund a new project, replace old equipment or train your staff; being ready for increases in demand can help reduce unexpected costs and accelerate business growth if planned correctly. Just be sure that you can meet the regular interest payments to avoid soiling the credit worthiness of your business. Work Harder Businesses that operate in accordance to changes in the season will know how difficult it is to keep afloat during periods of closure. For example, a sea side restaurant may get around 75% of its annual revenue during the summer time alone and will probably not be open for business during the winter season. Similarly, businesses may decide to open their business for fewer days of the week or cut their opening times if they face a slump in sales. In order to truly maximise the benefit of a booming economy, a business must be in business to attain such benefits. It will be difficult to see a significant rise in profits if your business is open for only four hours a day while your competitors get quadruple your profits rewards for working an extra four hours. Remember that once fixed costs are covered, any revenue in excess of its variable cost is pure profit. By Wilson Law at Tax Affinity. Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Improve the profitability of your small business
Statistics show that around two-thirds of small businesses failed to make a profit last year or increase their profit at all. However, people do not realise how much a small change can impact a business. Making a series of small changes can increase profitability more than making one big change. Here are some suggestions you can take to increase your profit. Revenue and Costs – The Direct and Indirect In basic terms, revenue minus costs equates to profit. So to increase your profit you can either increase your sales or reduce your costs. Many businesses may have little control over the amount of sales they do but all businesses should have control over their costs. Negotiating prices with suppliers can be a key factor to reducing your direct costs. Many businesses tend to stick with one supplier and not negotiate prices but being aware of market prices can increase your bargaining power and potentially save you a lot of money. Costs that could be regularly reviewed in your business include insurance, utilities, mobile/telephone charges and Internet. Ways to decrease your overheads and indirect costs are less obvious compared to direct costs. A good way to lower your indirect costs is to improve your systems. For example, switching from a paper based system to an electronic system to keep important records and manage documents can help reduce your administration costs and minimises the chances for errors. It may be good business practice to review your systems on an annual basis and to seek input from staff from future improvements. Marketing and visibility It can be a very difficult task for small businesses to get their name out and having a small marketing budget doesn’t help either. One thing to keep in mind is not the size of the budget but the effectiveness of your marketing. Understanding your target audience is vital to promoting the awareness of your business. For example, as a local fish and chips shop located near a high school, you can offer a meal deal for students. The sales promotion will help attract one of your key target audiences and possibly increase the reputation of your shop through word of mouth. Also, make sure your advertisements are tailored towards your target audience. Hearing back from 10% of 200 people is better than 1% out of 1000 people. Certifications and accreditations can help put you ahead of your competitors. With the Internet being such a huge platform for communication, it is definitely to your advantage to go online. Try setting up a user friendly company website or use social media sites to increase the awareness of your business. It is a cheap and effective way of promoting your business to prospective customers. Managing your Cash Flow Interests on loans may seem insignificant at one point in time but it quickly accumulates to realisable figures that can put a dent on your profitability. Try keeping a reserve of cash that can be used to cover your current liabilities i.e. short-term loans and interests on long term loans. Having a healthy cash flow can reduce the problems you face if a short-term commitment arises. Key Performance Indicators Analysing key indicators can give light to areas of improvement for a business. Common indicators include actual sales figures against forecasts, costs against budgets, gross profit margin and staff costs. Get advice from your accountant to ensure you’re monitoring the right indicators for your business as staff tends to work towards them whether they are critical to the business or not. The Real Gems of your business In particular to small businesses, every staff member has the opportunity to spread your company’s message. Everyone needs to contribute: whether that is networking on the web, promoting sale offers or greeting customers with a smile, every small thing matters. Get them to be as motivated as you are by encouraging self-development. Reward employees who make an effort to represent the business in and out of work. By Wilson Law at Tax Affinity. Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients right across the UK as well as Europe, Middle East and North America. For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends. Walk into any McDonald's, order a burger, and the cashier will ask, "Do you want fries with that?" Each yes adds £1 or more to that particular sale. If just a fraction of McDonald's' 54 million daily customers say yes to that question, that's millions of extra dollars in the owners pocket.
The same strategy is important for startups. You may not yet have built a large customer base, so you need to coax as much money as possible from each person who does show up. It's the old story: A bird in the hand is worth two in the bush. The issue at this stage isn't market share but wallet share. Boost the Pound value of your average sale, and you boost your cash flow and bottom line. Here's how you can bring in more of those sales. 1. Crunch the numbers. Begin by figuring out the Pound value of your average sale. If you have 20 customers and total sales of £1,000 on a typical day, your average sale is £50. Then you can set a new target and plot your strategy to hit it. Depending on your business, you might also want to calculate your average sales per hour, day of the week, employee, location, marketing campaign or other variables. Frequently the answers will lead directly to a plan of action. If your numbers are low on Mondays, for example, you can plan special Monday promotions. If one ad typically brings in a £2 sale and another weighs in at £12, you can adjust accordingly. 2. Change your product or service mix. Adding or subtracting to what you sell can help grow your typical ticket size. Take the case of a bakery that had an average sale of just £5. The problem was they offered virtually no higher-priced items. When they added specialty cakes and other premium goods, that figure jumped to £14. The same effect can sometimes be achieved by dumping lower-priced products. If you sell three different toasters, drop the £35 model and the customer will spend £45 or £55 instead. 3. Bundle your offerings. Encourage customers to spend more by giving them a package deal on multiple products or services. At McDonald's, the bundles are Extra Value Meals that include a starter, fries and a drink. At a car repair shop, it might be a tune-up and lube job rolled into one visit. You can also bundle your time. One computer repair company that wasn't making enough money charging by the hour started selling services in 10, 20 or 30-hour blocks. That new option yielded higher average sales and ensured return business. 4. Go for the add-on sale . "Do you want fries with that?" is a textbook example, but the same approach works for any business. One lawyer I know started asking whether every client had an up-to-date will. Two out of three didn't. The result was an extra £4,000 in average weekly billings. Later he repeated the feat with living wills. Another way to drive add-on sales is to create a checklist of related products for a particular kind of purchase. If you're a hardware store, a paint customer might also need brushes and drop cloths. Hand him a checklist and he'll likely walk out with more than a can of Satin White. 5. Create weekly or monthly sales challenges. Focusing your sales team on a particular area for a week or a month can also generate add-on business. When I owned photocopy shops, we pushed colored paper one week and banners the next. Some grocery stores offer specials at the checkout counter to trigger impulse sales. 6. Take hidden products or services out of the shadows. I once coached an insurance broker who sold only 1.27 policies per customer despite offering more than 14 types of insurance. A survey revealed that most clients didn't know he sold those products. He was failing to show his entire hand. Signage, newsletters and other tactics can help. 7. Train your staff to make the higher pound sale. Sometimes simply making staff aware of your target sale value will help you get there. If they're just selling what the customer came in for, you're not going to hit your numbers. Tell them what you're looking for, and then give them the tools to achieve it. 8. Raise your prices. If you're just opening your doors, price your products or services on the high side and figure out how to offer more value. Being the cheapest isn't necessarily going to pay the bills, and you'll be left high and dry when a competitor beats your price. If you've been in business for a while, don't be afraid to bump up your prices by 5 or 10 percent. Most customers won't care (You don't stop going to your local Starbucks or your hair salon when they raise their rates.) And you'll increase your margins, so a few lost customers won't make a difference. By using tactics like these to maximize every transaction, you help keep the cash flowing while you're getting your business off the ground. Once you're airborne, these same strategies can develop your flight plan for generating peak profits. Master the art of supersizing your sales early, and it will pay off many times over. By Brad Sugars writer for Entrepreneur magazine. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this article with your friends. Tax Affinity Accountants based in Kingston upon Thames are experts in tax and accountancy for small businesses. And are daily helping businessmen and women grow their business and profits despite the economic condition. To find out more money saving and business success tips follow us on twitter @tax_affinity |
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