There are some very simple steps you can take to bring down your overheads. It just takes a little discipline. And a little shopping around.
Check your net margin
There's no point trying to cut costs if you don't know your numbers to start with. Look at the margins across all of your services or products. Are you charging enough to cover your costs?
Calculate your operating costs
If you have employees, make sure you have updated records of all wage payments. Look all related costs, distribution and storage, as well as the actual cost of manufacture (product) or delivery (service).
List all indirect and administrative costs
This should include: rent and property expenses; utilities - electricity, water and gas; insurance; salaries of management, administrative and maintenance staff (including all associated costs such as national insurance contributions); telephone; postage and additional suppliers.
Finally, add up all the costs and expenses and subtract this figure from your turnover. This is your net margin. You can work out the net margin of specific products or services by repeating the exercise only taking into account costs incurred by that particular product or service.
Take action
Once you have all the financial data, review your spending patterns. Check all standing charges and costly working practices, you may be able to make extensive savings:
1. Check the expiry dates of all your contracts and standing charges. If you're nearing the end of your term, try to negotiate a better rate with your current supplier, or shop around for a better deal. Start with your electricity supplier, gas supplier and telephone company, but don't forget other outgoings: courier companies for example. There are always cheaper deals out there.
2. Review your postage habits. Do you really need to send your mail in a large envelope? Quibbling over first or second class may seem petty but over the year, the costs mount up. Save up to 30 per cent of your costs by using a franking machine with an electronic scale.
3. Outsource your non-core activities. Do you really need to pay your skilled staff to do menial admin tasks? Lower the labour cost by outsourcing these activites. Let someone else do the filing, printing, envelope stuffing and franking.
4. Take a look at your biggest expenses. The big numbers should be your focus. Try to find ways to bring down these large costs. Start with the expensive repeat offenders, then work down the cost bracket.
5. Monitor your energy usage. Ideally, you will have checked the classification of your electrical appliances before buying them (a class A appliance uses less energy than a class B, and so on). Buy energy-saving light bulbs and ask your staff to turn off their equipment and lights overnight: an appliance on stand-by still uses energy. For more ideas on saving energy, visit the Carbon Trust website [www.carbontrust.co.uk]
6. Sweat the small stuff. Are your employees using their work mobile phones efficiently? Could it be cheaper to make some calls from a landline? If you do business abroad, can you get a calling card that slashes the cost of the international call? Is email a viable alternative for this communication?
If you are organised, and regularly review your outgoings, you should be able to bring down your overheads.