Imaginative Cost-Cutting is Key For SMEs




Brexit negotiations and the snap election have sent the economy spinning and SMEs can be vulnerable at a time of uncertainty.  Clients can slow down their decision-making and new business cycles can take longer.   The urgency to bring in new revenue is something that most entrepreneurs will recognise, however, there’s only so much pushing that can be done.  Many companies don’t give as much attention or effort to reducing their spending when in fact this could help sustain their business longer term.

Obviously, the more your business costs to run, the more money you’ll have to make.  So maybe it’s worth looking at cutting costs with the same passion we look at bringing in the cash.

When you mention a cost-cutting exercise many people hear alarm bells.  Is your business failing?  Are you looking to cut jobs?  In truth, an effective cost-reduction programme won’t threaten the business or the workforce, it will sustain it. 

While some larger enterprises can afford to hire a full-time cost manager, for SMEs and start-ups the burden is on the management and the team to assess the way money is spent and to find savings.  If your team is busy with their regular work, they’ll have little time to add cost-review activity to their schedule so you’ll need to implement a longer-term project rather than just a quick fix that could encourage staff to cut through the supplier list looking for cheaper alternatives. 

Cause4 conducted its own cost review recently – and the results were surprising and sometimes a little painful to admit.  We took a full year to complete the review and looked at everything from expenditure on office supplies to tax credits and available funding.  No one could have predicted the outcome would be so beneficial – or that the cuts would not negatively impact how we work.   We felt our stationery bill, for example, was at the bare minimum and couldn’t be cut – although we succeeded in reducing it by £1,000 a year.  We found that as a business investing in digital systems we qualified for almost £30k of innovation tax credits.  One year later and we’ve been able to reduce costs against turnover by 7%. 


If you’re intrigued, here’s how it’s done:

1.     A Team Responsibility – although some staff will be uncomfortable by the very idea of cost cutting and what they think this might mean for the stability of the business, it helped that we shared the goals and the purpose of the exercise, involving everyone in what was to be cut and how the money saved might be used in future.  You want to look at all expenditure and the more people you involve who can offer suggestions the more ways you’ll find to save.

2.    Don’t be cheap about it it’s not worth risking reliability or quality by using suppliers that don’t come up to your standards, especially in professional services like your auditors, accountants or lawyers.  If you’ve grown to rely on senior consultants then don’t settle for less or you may suffer.

3.     Think about sharing there are often opportunities for joint procurement.  You could be eligible for VAT relief by sharing back office services, for example.  Or you could find savings by sharing bulk purchases with another small business. 

4.     Plan for the worse-case scenario imagine your company’s income drops by 25% or 40%, how would you survive?  What would you cut?  It’s a great way to prioritise your expenditure.

5.    Don’t just go for the easiest cuts – sometimes it might seem easier to cut marketing or staff training when money’s tight.  But that can have a negative effect that’s hard to recover from.  Good marketing helps generate vital leads and you need to maintain the sales cycle, however long that takes.  In addition, cutting staff perks or career-enhancing professional development could negatively affect morale and lead to bigger issues.

Be creative with cost cutting.  You’ll get to profit more quickly and the whole exercise can focus the staff on the business’s success as they understand the real value of every cost.  Use the same energy and inventiveness when cutting costs as you would usually put into generating new business.  The impact will definitely surprise you.