Knowing what your big spend is can go a long way towards helping you slash and burn the hidden costs in your business.
BY: STEVE HART
While the green shoots of economic recovery may be about to sprout, plenty of business owners are still struggling to make ends meet. Wielding the blunt instrument of redundancies is one way of making savings, but business adviser Paul Wilton says managers need to take a careful approach to costs so they will be in a strong position when the upturn gathers momentum.
Wilton is CEO of business information and support service Financial & Business Advisor. He says that before cutting expenditure, efforts should be directed at bringing money in the door.
“The best way to improve your bottom line is to improve sales,” he says. “Even a small percentage increase in sales will have a much higher proportional impact on your bottom line than cutting costs. That is the first thing a business owner should look to do.”
Wilton, whose firm has been advising business owners since 1995 via its annual subscription service to a bank of business specialists, says when it comes to cutting costs, business owners should only reduce their advertising spend as a last resort.
“Once a firm has done everything it can to increase sales then you can start looking at what you are spending,” he says. “One of the big mistakes firms tend to make during hard times is to reduce their advertising. But the things you don’t want to cut are those that bring in revenue. If an advertising campaign is working then the last thing in the world you want to do is cut it back.”
KNOW EVERYTHING
Before making any cuts, Wilton says business owners need to know everything about every cent they are spending and understand what they are paying for. He recommends a twice-yearly or ongoing review of all costs – especially big-ticket items such as manufacturing materials, office accommodation, transport and staff.
“Many businesses tend to do the same thing over and over again – even if it is not working,” says Wilton. “What one needs to do is to continually analyse all aspects of the business and ask ‘why are we doing this’ and ‘is it delivering value for money’. And if you don’t know why you are spending money on a particular service or if you are not getting good value for money, then stop it.
“The key is to start by looking at the larger costs first. For example, phone companies are becoming more competitive – particularly in the mobile phone market – so perhaps now is the time to look at those costs. “Once the large costs have been fully reviewed then start to look at smaller, more frequent ones – to see what can be trimmed or cut. It is a good time to shop around. ” Wilton says having premises is a big expense that all business owners should review. He says that while some businesses could be run from home, many managers could probably run their operations from less expensive locations.
THE
REAL KILLER
It is a view shared by Marcus Moufarrige, CIO of serviced office company Servcorp, that has been operating in New Zealand since 1989.
He says sharing office space can help firms reduce accommodation costs and remove layers of problems – such as cleaning, providing refreshments, front of house and buying complex phone systems. Not only that, businesses can rent space from Servcorp for a month at a time.
“The most expensive part of running a business is setting up a professional office,” says Moufarrige. “With serviced office accommodation you can rent what you need and expand and contract as required. For example, you may only need a meeting room once a month. With us, you’d book the room and pay for what you need.”
As an example, Moufarrige says a firm renting a building to service four executives can typically reduce its office rental costs buy up to 50% by going with Servcorp, when compared to doing everything itself. “I have done a lot of analysis on total cost of ownership and running an office,” he says. “And we can provide what businesses need for between 30 to 50% cheaper than the cheapest way of doing it.
“There are a lot of hidden costs in setting up an office that many people don’t think about – from the newspapers that get delivered every day, to electricity and security. They are all part of the service in Servcorp buildings. What we call rent is pretty much everything a business could need to operate.”