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Going Lean: How To Cut Business Costs In 2016

Even successful businesses can become inefficient over time as unnecessary costs creep in. January is a good month to take stock and consider ways you can return to lean principles in 2016.

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Even successful businesses can become inefficient over time as unnecessary costs creep in. January is a good month to take stock and consider ways you can return to lean principles in 2016.

Guides

Going Lean: How To Cut Business Costs In 2016

Even successful businesses can become inefficient over time as unnecessary costs creep in. January is a good month to take stock and consider ways you can return to lean principles in 2016.

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January should be a clean slate for SMEs, with audits of business practices and company finances erasing bad habits, and putting firms in the best shape to grow in the year ahead.

THE beginning of a new year prompts many feelings – hope, a hunger to put new plans into practice, and vows to do things better than before. For small business owners, January is the time to extend such resolutions to their professional lives.

These typically quieter weeks are an opportunity to revise current processes, polish the business’s finances, and give your operation an overhaul to keep abreast of – and even beat – rivals in 2016.

Boosting profits

Increasing sales and company profits is an obvious goal, which means weighing up the products or services you’re selling. Take a hard look at your offering, and identify what customers like, and what’s less popular.

Detailed sales figures and inventory analysis should reveal this. It may be necessary to admit your product range needs slimming down, you need to develop items or services in line with new trends, or take the company in a different direction. Such plans may require investment, but the sooner you know what’s necessary, the earlier you can devise a plan.

"Maintain cashflow forecasts at least once a month. They should crunch projected sales figures plus unavoidable outgoings"

Who are your customers, and have you undertaken market research to discover their wants or needs? Often, SMEs conduct analysis before launching their enterprise, but fail to stay informed of market changes, what competitors offer, or shifts in popular attitudes.

Social media can be a powerful tool, as can simple dialogue with your existing client base either face-to-face or by email.

Once you have a game plan for 2016, think about marketing. Social media has the potential to reach a wide audience, but choose your platform carefully. Facebook and Instagram are more popular with women, for example, research from Pew Research Center indicates, whereas Twitter has a strong following among both genders.

And if you aren’t online, you should be. Having a website that’s both transactional and mobile-enabled is wise, since the vast majority of people now use smartphones to browse for information, buy goods and make bookings, so keep pace with customers’ habits.

Keeping the cash flowing

January can be a barren month in terms of cashflow – retail businesses in particular can feel the pinch, even if they’ve done well at Christmas. Paying bills for the festive period’s extra stock, plus 2015’s last rent quarter day falling on December 25 comes as a shock to many. But smart business owners will know in advance what to expect.

Always maintain cashflow forecasts, at least once a month. They should crunch projected sales figures – in best and worst case scenarios - plus unavoidable outgoings, such as payroll, and any other sums going into or out of the business.

cash flow

Cashflow is the lifeblood of businesses large and small

Measure these against the SME’s real performance to understand the truth about company finances. The Institute of Chartered Accountants in England and Wales offers further tips on calculating cashflow for SMEs.

If you identify a shortfall before it occurs, you can bridge any money gap either by arranging a short-term loan, extending your overdraft, or negotiating with debtors to delay payments owed. Investing in accounting software that creates regular cashflow projections could also help you stay on top of your numbers.

With SMEs currently owed £26 billion in unpaid bills, chasing late payments is another must. Put rigorous payment processes in place – again, software could help by automating invoices and following up tardy payers.

From April, large businesses must report on their payment practices twice a year, which business groups hope will help smaller companies get paid. But small business bosses must take primary responsibility for their financial wellbeing, so be vigilant with debtors.

Audit systems and processes

Another way to improve your profit margin is to identify where you’re wasting money. Cutting costs could add big numbers to the company’s bottom line. For example, about a third of small firms say the cost of energy is a major barrier to their enterprise’s growth, according to the Federation of Small Businesses.

Yet the Government estimates the average SME could save up to 25 per cent on their energy bills by installing basic energy efficiency measures, such as switching off lights and equipment, installing timers and thermostats, and incentivising staff to reduce energy use.

And always shop around for the best tariff from energy providers using websites such as USwitch for Business or Make It Cheaper.

You might make savings on fuel and transport by getting rid of expensive company vehicles, and signing up for a car share scheme – ZipCar and Carplus are good examples.

old truck

Is it time to upgrade the company fleet?

The sharing economy is growing in prominence, with more SMEs splitting the cost of office space, accounting, administration, and human resources functions with other companies, according to research by Ashridge Business School, StartUp Britain and ZipCar.

Some smaller companies are also clubbing together to invest in state of the art technology. Almost one in four business owners identified better technology as being the most important thing to encourage business growth in 2016, according to Barclays Business.

Undertake a digital audit of your business with the help of an external expert, if necessary, to determine whether your current efforts are proving effective. Is your existing technological infrastructure adequate?

Then, devise a digital strategy for the future. Business is increasingly conducted online, so to stay ahead of the pack in 2016, make sure your IT, social media, and back office functions are as relevant and efficient as possible.

Economic conditions are looking favourable for business growth, and SMEs have many reasons to feel confident for the future. By doing a little housekeeping in the quieter days of January, you could ensure your business is one of the ones that enjoys a buoyant and lucrative 12 months ahead.

Alex Littner is managing director of Boost Capital

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Going Lean: How To Cut Business Costs In 2016

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