Reducing costs is about looking at four areas of your business, according to Neil Heyside, chief executive of consultancy Effective Management Group.
First of all though, he says: “Decide how much cost you want to take out and how quickly you want to do it.”
Then consider these four areas:
- “Policies – what your business policies are, for example, to collect cash two weeks after a job starts
- Processes – how you go about implementing policies
- Systems – the software or technology that supports the process
- People – the skills and behaviour of staff and the culture of the business.”
You then need to get the right data.
- Analysis. Measure what you are doing at the moment and decide what you are going to improve.
- Then find the solution
- Implement it
- Follow up and revise what you would change.
Mr Heyside says it is vital to consider those who remain in the business, as they will need to work differently. “You need to improve the performance of the people who are left,” he says.
What every business can do to be more efficient
By John Judge
The downturn need not necessarily be all doom and gloom for SMEs. Here are six key things that every business can apply.
1) In an attempt to ride out the recession, many businesses freeze wages or introduce pay cuts. This can have a demoralising effect on staff if not managed properly. Ultimately though, it keeps people in work, and if you package, sell and communicate this correctly, it can galvanise the workforce. But there must be incentives. Say for example you take 10 per cent off everyone’s earnings, they must know that if they work hard and the company succeeds in making its expected profit they’ll receive that 10 per cent back.
2) Revisit your overhead spending regularly:
- Where is the company’s money going and on what?
- Does the company really need what it’s buying?
- Are there cheaper alternatives? Can travel be done differently to lower costs?
- What ideas can be learnt and borrowed from other companies that have successfully lowered costs?
Rip up existing communications contracts and utility contracts, and aggressively look for better deals. Sometimes, paying a penalty is worth it if there are greater savings to be had elsewhere. Make procurement work harder for you and offer incentives to them to save the company money.
3) Revisit the supply chain. Can you get what you want cheaper elsewhere? Do your research and negotiate with existing suppliers to see if they can match or better other quotes.
4) Can your business be streamlined and made more efficient? Can departments be centralised?
5) Having done this and reduced the cost base, the company is now in a better position to be more aggressive when bidding for work. At this stage, don’t be afraid to invest in business development, because with a lower cost base and a more competitive edge you are supremely placed to increase your market share.
6) Manage cash flow in a very analytical manner. Never allow clients to pay you late. Speak to them if they renege on the terms of a contractual agreement and seek a resolution that’s satisfactory to you.
John Judge is a management consultant with his own business, Judge3D. He has worked in the infrastructure and property sectors.