Getting on the front foot at this time of year can put small businesses in good stead, so SmartCompany went out in search of some of the best tips for cost-cutting measures for the new financial year.
Bigger is not necessary better, with leaner and more efficient businesses that use technology and their business smarts more likely to get ahead in the next year, according to Pitcher Partners’ accounting and business advisory services David Staples.
For Australasian chairman of accounting firm MGI, Grant Field, small businesses need to be looking at ways to remove waste wherever possible in their business.
“Once you come to appreciate the significant waste a lot of households have, you see the sort of things you might find in businesses,” he says.
Here are seven top tips you can use in your business:
1. Look at gross profit margin and revenue
Because most businesses find it difficult to find ways to cut costs to the bottom line, Staples says it’s better to focus on profit margins and concentrate on the revenue side of things.
“Cost cutting is also about building gross profit margins – many costs are fixed when it comes to overheads, you are limited to how much you can cut those,” he says.
“Look at your gross profit margin and components of the costs that make up that, then focus on how can you reduce costs there.
“When it comes to revenue items, consider things like restructuring your service… and expanding services to provide another attractive offering.”
Staples says another way to build revenue is through analysing your sales team.
“Set them targets, recognise you might have a revenue growth problem in this area and if you might need to look at other ways to do business,” he says.
2. Assess premise’s rent costs
Fields says many businesses get locked into long-term leases but it is important to be conscious of the size of premises you have and start asking questions about whether you can afford to operate from smaller premises.
“You might need big premises because you are holding too much stock,” he says.
He says even if a move isn’t in order, reducing excess stock can lead to lower on-premises costs, which can have other cost-cutting flow-on effects.
3. Take your business digital
Staples says another one of his top tips for small businesses looking to cut costs in the year ahead is to look at ways of taking your business digital, where doing business electronically can help drive down traditional costs.
Avenues to consider “going digital” include cutting paper subscriptions, using cloud accounting software and engaging with customers through website feedback portals and social media, he says.
Staples says social media provides small businesses with more opportunities for better contact with customers, while allowing them to reach larger audiences.
“Most aren’t interactive but the opportunity is there for using Facebook and Twitter to interact with customers in a more targeted and more real time way,” he says
“In many cases it can be a far better option for business than traditional ways of advertising.”
4. Get savings afloat with cloud accounting
Staples says another way of driving down accounting costs is to look at using cloud accounting applications such as Xero or Saasu.
Staples says users of cloud accounting systems should make the most of the application’s electronic invoices and set it to automatically upload data to cloud software, which could ultimately help to free up accountancy costs and give the accountants more time to do important things, like crunching the numbers.
“It improves the speed of feedback and reduced cost of monthly compliance accounting, it’s an opportunity to reduce costs but get better value in terms of understanding the business,” he says.
5. Reduce waste in all aspects
Businesses should look at removing waste wherever possible according to Field who cites the ‘seven wastes’ model made popular by Toyota many years ago.
Overproduction of materials; waiting for raw materials to arrive; transport costs associated with internal movements of the product; the over processing or inappropriate processing of products; defects; and inefficient use of office or factory layout are six of the main wasteful practices businesses should avoid, according to Field.
By far, however, Field thinks the biggest sin of the seven is unnecessary inventory.
“I’m amazed when I go into a business and an owner proudly shows me all the stock they are holding.
“That’s a huge amount of cash that’s wasted or tied up in that stock. I think stock management and inventory management is a huge area for improvement.”
6. Look at ways to improve product delivery times and costs
How efficiently you deliver products and services can be some of the biggest contributors to cost that small businesses have the power to adjust, according to Staples.
Reducing these types of costs can make a real difference to gross margins, he says.
There are also lots of opportunities to manage delivery better by “thinking outside the square”, such as looking at logistical trucking routes, the costs of using post, and amalgamating routes with other companies.
7. Talk to your bank
Staples says one of his more unusual tips for small businesses is “talk to your bankers”.
“Go in and ask questions about interest rate margins… you can negotiate better outcomes.”
Staple says in the current economic climate and a falling Australian dollar, small businesses buying and selling in foreign currency should look at locking in currency to protect margins.
He says most Australian banks offered foreign currency accounts.
“If you have to buy in US dollars, have all that money in US currency deposited into a US currency account, so you’re not converting to US currency all the time.