Coventry Best 4 Business

by Josh Hall

Small businesses are on the front line of the recession. Buffeted from all sides, they are reporting a decline in trade, rising costs, and a reduction in the availability and affordability of credit.

Even in more benign conditions, cash-flow is of primary importance to small businesses. In the face of such a far-reaching downturn, ensuring that your business retains healthy levels of liquidity is absolutely vital. And if you are struggling with working capital, one of your first steps should be to cut costs.

Yet by their very nature, small businesses tend not to have very much fat to trim. As such, a bit of creative thinking is necessary if you are to reduce your outgoings. An honest and objective look at your business should reveal some areas that could be more cost effective. Here are some ideas that could help to expand your margins.

Finance and banking

A simple health check for your finances can bring significant rewards in both the short and long term.

Payment processes – ensure that you are collecting payments in an efficient manner. Most late payers will settle up as soon as they are reminded. Make sure that your payment terms are clear, and that you send a friendly reminder shortly before payment becomes due.

Debt servicing – although the ability to shop around for credit providers is now significantly limited, it may be possible to renegotiate the terms of any loans you may be servicing. Even a small reduction in your interest rate can make a big difference to servicing costs, while extending your repayment period can help to ease cash-flow.

Business banking – many small businesses are paying over the odds for their business banking services. If you are being charged a fee for your current account, or if your transaction charges seem excessive, try renegotiating with your bank. If they refuse to budge, threaten to take your business elsewhere.

Accounts receivable – consider making use of a factoring company to convert your accounts receivable into cash. You can normally get around 90% of the value of an invoice within 24 hours. Simply Business can get you quotes and introduce you to a suitable invoice financing company.

Human Resources

It is a measure of the scale of the downturn that, according to the Federation of Small Businesses, 21 per cent of SMEs have cut staff, while another 35 per cent would do so if credit conditions tightened. However, redundancies may not be necessary if you can cut costs elsewhere.

Wages – conduct a review of your pay structures. Are you paying more than the industry average? Most staff will take a pay cut rather than lose their job, and if you are honest with your workforce about the realities of the situation you should be able to mitigate any damage to morale.

Internships – many people are desperate for experience that will set them apart from the ever-increasing sea of job applicants. Try taking on interns – it will increase your productivity, and give the worker valuable new skills.

Overheads

Where possible, look for areas in which you can reduce your regular outgoings to increase productivity and ease cash-flow.

Office space – if your business currently occupies office space, give some thought to either downsizing or moving to more affordable premises. For example, shared or serviced offices can be cheaper as the cost of maintenance is spread.

Utilities – oil prices are falling, but utility companies have already said that they will not yet pass on these savings. Make sure that you shop around for the cheapest provider, and avoid deals that lock you in for a number of years. You can also save money using simple techniques like turning off equipment at the end of the working day.

Insurance – good insurance is a necessity for any business, and it is also one of the key areas in which you can save money. Check that you are not over-insured, and don’t worry about shopping around before your current policy expires – the savings that you will make by switching frequently significantly outweigh any cancellation fees.

Pricing

Price is even more of a consideration for consumers today than it has been in the past. If you operate in an industry where price is the only discerning factor, you will need to give particular thought to squeezing your margins.

On sales – carefully examine how cheaply you could sell your products while still making some sort of profit. Would dropping your prices result in an increase in sales volume? Sacrificing some of your margin in order to increase volume is almost certainly a good idea in the current climate.

On purchases – remember that almost every business is in the same position. As such, your suppliers are likely to be much more amenable to negotiation. Look for price reductions or extended payment terms wherever possible.

The coming months are clearly going to be difficult for small businesses. However, streamlined, waste-free companies can survive and as such, you should start your cost-cutting exercises today.