Keeping track of expenses can help keep your business on track
“Beware the Ides of March,” Julius Caesar was famously warned in Shakespeare’s play named after Ancient Rome’s best-known general. Despite being a superstitious man, Caesar ignores the soothsayer’s warning and (plot spoiler alert!) walks straight into his assassination.
Now, I may not be as superstitious as Caesar, and I certainly hope not to meet the same fate! But March does always bring a sense of dread, since it brings with it our annual council tax demand. I received mine last week.
Large or unexpected costs can place huge pressure on a business
I don’t know about you, but I always need to sit down and brace myself for the shock of finding out how much I need to pay each year. The funny thing is, is that I know it’s coming (okay, it’s not that funny). It came last year, I know it will come next year, and I have a fairly good idea of what the increase (never a decrease) will be each year. And yet it’s still a shock, and I always feel slightly annoyed with myself for not budgeting better for it. Why didn’t I just tuck away a small amount each month during the preceding year, so that it wouldn’t be such a shock and I would be better prepared?
This got me thinking. Most of us have a fixed salary or income, and even if we’re running a business, we’re usually not in a position to just draw more money whenever we need it. Yes, we can dip into our savings from time to time to meet unexpected expenses. Maybe we can take out a short-term loan, increase our credit card spending or borrow against equity in our house. But the first two can be very expensive, and the third can take time to arrange, if it’s available at all.
Controlling costs, not short-term borrowing, is key
In any event, these are generally only short-term and one-off fixes. In the long-term, the only sustainable solution is to reduce our spending. Maybe that means having one less night our per month, perhaps ordering a cheaper takeaway meal, or holding off buying that new outfit or pair of trainers.
Individually, these may not sound like much, but together, cumulatively over time, they can make a huge difference to our overall disposable income and our ability to budget.
Businesses are no different. “Cashflow is king,” we are told, and an unexpected business expense, a one-off or “Extraordinary Item”, to use the accounting term, can place enormous stress on a business. And if that business operates on a slim profit margin, perhaps also carrying a heavy debt burden, then a large and unexpected expense can even threaten the very survival of the business. Being in business recovery mode is a scary prospect, but it’s a reality faced by thousands of businesses every day.
It’s much easier to influence costs than revenue
Every business would love to double or triple its revenues and profits, but just as with our personal finances, it’s difficult to increase income quickly.
But remember: profit equals revenue less costs, and while businesses may have limited ability to influence top line revenue, we certainly do have much greater control over our costs.
Taking control of variable costs – use it to your business’s advantage
Every business has fixed costs and variable costs. Variable costs rise with the business’s output, and a higher output is a good thing, right? So maybe there’s not too much we can do to control variable costs without jeopardising output, and no business owner wants to be forced to reduce output simply to avoid cashflow pressure.
But with fixed costs, we do have more control, and it’s actually possible to make significant cost savings. Of course, there are some fixed costs which are difficult to reduce, such as the rent on our office or premises. However, there are other costs that we often think are difficult to reduce, but where we actually can save money. Think about the following costs:
- Power: these days we generally have several electricity and gas providers that we can choose from. We all see adverts on TV and elsewhere offering to save us money on our gas and electricity bills. The same goes for our business. There are plenty of savings to be had, yet very few businesses take the time to do the research and figure out what is the most cost-effective option available.
- Communications: from our phone lines, to the internet, to mobile phones, even satellite or cable television, these costs quickly add up. Yet how many businesses take the time to do an audit to see whether there are better deals available?
- Insurance: almost all businesses carry some kind of insurance cover. These may include some or all of the following:
- building and contents
- employer’s liability
- professional indemnity
- business interruption
Again, it is almost always possible to find a better deal, but all too often business owners and managers are too focused on the day-to-day running of their business to worry about it.
- Finance: all businesses (at least, the legal ones!) have a bank account and various banking facilities. These may include overdraft or other credit facilities, and business loans. Our banking needs are dictated by the type of business we run, but again, there is almost always a better option available: more flexibility, lower fees, larger overdraft facility. Whatever it is, businesses all too often believe they are stuck with their current arrangement, and do not invest the time to shop around.
Don’t let inertia stop you from saving money
Just as with our personal finances, there are many ways that a business can reduce its fixed costs. But all too often we are struck by inertia. We believe it’s too difficult or complicated; I’ve been with this provider for so long; I know them, they know me; I’m not sure if the savings can justify the hassle of reviewing and changing everything.
But when we’re running a business, these things are important, and small cost savings can make a huge difference. Perhaps they can help with business recovery and even ensure the long-term survival of your business as it goes through a downturn or a difficult patch.
The Kingsland team can help, using the tools of the insolvency practitioner to assess your variable costs and help to realign your business to challenging economic or industry conditions. Our QuikSwitch division can help you to streamline your costs and reduce your expenses by sourcing more competitive deals.
For further information and advice, please get in touch: firstname.lastname@example.org