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Cost cutting tips for SMEs

Paul Shephard, Director, Clydesdale and Yorkshire Banks The UKís 4.8 million SMEs are throwing money away by failing to review their outgoings often enough, according to new research by Clydesdale and Yorkshire Banks.

The survey shows that more than half of SMEs go at least six months without reviewing costs while 14% never review their expenditure at all. Micro-businesses Ė those with less than 10 employees Ė were found to be the most likely to review costs with nearly one in four doing so at least once a month. However, sole traders were the least likely to try to make savings with 33% never taking the time to review costs.

Among the most common reasons given for not reviewing costs, 26% said they simply did not have enough time.

"It is quite surprising to discover that so many UK SMEs are not looking at their key costs regularly Ė meaning they could be spending money they donít need to," said Paul Shephard, Director for Business and Private Banking at Clydesdale and Yorkshire Banks. "By identifying the biggest costs within your business and planning to reduce these where possible, owners will be giving their company the best chance to remain competitive in a challenging economic climate."

The research found the top five business expenses (excluding staffing) were: materials and supplies; rent and rates; vehicle fuel; IT software or technical support; and utilities. Nearly a fifth of those questioned said these combined costs made up more than 50% of their businessesí total annual expenditure.

Paulís advice to SMEs looking to secure best value includes:

  • Materials and supplies: It always makes sense to negotiate. Never be afraid to ask for a discount Ė the worst that can happen is the supplier says no. If you are not comfortable negotiating the key steps to consider are: set an objective; research the supplier and know what to expect; donít allow yourself to be intimidated; donít let your passion for your business cloud your judgement; and always remember if the deal isnít right you can walk away. An easy way to identify alternative suppliers is comparison websites such as reviewcentre.com. Finally, if you have not done so already, investigate bulk buying. This makes particular sense for businesses operating multiple outlets that may have placed similar orders for multiple properties when they could secure more economical deals through larger orders.

  • Rent and rates: While you may not be able to influence the rates you are paying, it is worth exploring whether your place of business still best suits your needs. Rent levels can be negotiated with new landlords looking to maximise occupancy and a new property may offer lower prices than you are currently paying. To save you time and to make the process easier the Department for Business Innovation & Skills recently launched its 'Small Business Lease' which is free to download and use. This new contract is designed to give both landlord and tenant the confidence to agree fair terms that provide clarity for both sides. While it is a big decision to relocate, the long-term savings could be significant. By moving to a newer building you could also make other savings through more energy efficient running costs.

  • Fuel: Companies purchasing large quantities of petrol and diesel could save money by reviewing purchasing strategies and fixing costs in advance. The benefits include taking the guesswork out of budgeting and relieving worries about possible sharp increases in fuel prices. The risk with fuel hedging is the possibility that fuel prices could drop below the pre-arranged price set out in the contract, but with many market commentators believing that prices are on an upward trajectory, this option could still be attractive for many. The Federation of Small Businesses operates a fuel card scheme where companies can receive as much as 3p off the price of a litre of fuel although minimum amounts apply. Another easy way to make savings is to simply cut out unnecessary journeys. Making use of technologies such as tele and video conferencing remove the need to travel while free internet services such as Skype provide convenient alternatives.

  • IT software or technical support: 16% of those businesses surveyed said they have reduced their investment in IT equipment and were turning to measures such as cloud servers to manage their data requirements. While still an emerging service, the use of cloud technology is advancing quickly with major companies now offering a range of options for businesses of all sizes. If this option suits your business you could eliminate the need for large in-house servers to manage a range of IT functions and therefore reduce maintenance costs. Further details are available from the Information Commissionerís Office while cost comparison sites such as comparethecloud.com offer an idea of the range of services available. Savings can also be made through the purchase of second-hand, reconditioned or refurbished computers. Organisations such as The Carbon Trust offer a leasing deal and access to energy efficient equipment with more details available from its website. The fast-changing specifications of the technology we use means that you can pick up high performance used machines for a fraction of the cost, with most big name companies all offering refurbished options with potential savings of up to 95%.

  • Utilities: With the UK Government predicting electricity and gas prices to rise by 26% by 2020, it makes sense to keep bills as low as possible. The Carbon Trust estimates there is a 50% difference between the highest and lowest energy tariffs. Business price comparison websites such as uswitchforbusiness.com, comparethemarket.com and energyhelpline.com all provide a free service to find the most competitive rate for your business. The Carbon Trust estimates SMEs could save £6k per year through a range of measures. These include saving 10% on heating bills through regular maintenance and saving a further 8% by reducing the temperature by one degree. While implementing these measures can take time, by becoming aware of the amount of energy you use and taking steps to minimise consumption, you will make the greatest savings possible when faced with steadily increasing bills.

Paul concluded, "No two businesses are the same and each will have its own priorities. However, what should be common to all is the desire to reduce costs and to reinvest that money to achieve sustained growth."

"Perhaps the greatest factor SMEs face is the lack of time and so every opportunity to streamline this process should be welcomed. There are a number of organisations and online forums which offer immediate access to valuable information and these opportunities should be exploited wherever possible."

"It makes sense to set up formal review procedures in every business, regardless of size, on a regular basis."



For more information, please visit: www.cbonline.co.uk/business



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