When you’re running your own business, you want to make it as profitable as you can. But, when you have to account for all of your outgoings and overheads, that can be easier said than done.
By doing a deep dive into your business, you may be surprised at the areas in which you could be saving money instead of spending it. Our team at Smith Butler is here to help put your costs under the microscope – and potentially free up some of your money.
Understanding your outgoings
There are two types of spending when it comes to the way your business operates: costs and expenses. They might sound like the same thing, but they are quite different and here’s why.
An operating cost is an essential expenditure for your business, even when it isn’t trading. This means rent, accounting, salaries for your management and general utilities all fall under operating costs.
Operating expenses are the costs you incur day-to-day. This covers all materials used for your business or product, manufacturing and packaging.
Both of these are kept separate to help calculate the cost of selling your product and delivering it – which is important when it comes to your gross and net profit calculations.
When it comes to the kinds of overhead your business needs to consider, there are three main categories. The first is variable overheads, which are costs that change depending on the sales volume your business reaches. The main items in this category are:
- Office supplies
- Marketing expenditure
- Utility costs
- Maintenance of your equipment.
Next are your fixed overheads. These will be your basic requirements for your business’s activity such as rent, mortgages and government fees. Even if your product isn’t saleable, these costs will remain the same.
Finally, you have your semi-variable overheads. These can fluctuate depending on your business activity. This will mainly fall on labour costs (e.g. hour wage and salaries), vehicle costs and most utilities and commissions.
Opportunities to save
Labour
Running a business needs bodies to help deliver your service. You don’t want to be running on a skeleton crew and have the added stress of spreading yourself too thin. But, if you overhire, you’re effectively throwing money down the drain.
Remember, calculating your labour costs isn’t restricted to salary. You’ll need to incorporate holiday pay, pension contributions, National Insurance contributions (NICs) and potentially even training costs, too.
Look at how many staff you realistically need for your business to run smoothly – and think about this carefully before making any hires.
The cost of your premises
Some say that renting is dead money, but buying a premises outright is also an incredible expense you may not necessarily have the capital for. All you need is a space that is fit for purpose, maybe in a cheaper location, unless your business heavily relies on footfall for it to be profitable.
As leases can be a lengthy commitment, try talking to your landlord about the price of your rent. If they aren’t willing to budge on the price, think about shopping around.
Inventory management
Managing the inventory which passes through your business is a must. It may not seem like a big factor, but it all adds up. Calculate the cost of storage or your inventory capital.
If you have loads of old inventory hanging about and taking up space, why not sell or offload it? Once you have balanced things out, you can look at setting strict levels and sticking to them.
Outsourcing
Instead of hiring and training staff to run your accounts, why not outsource? You won’t need to contribute to a workplace pension and the team you outsource to will already have all of the relevant training required. If you no longer need the service, you have the option to just stop using it – instead of having to worry about the firing process.
Review your contracts
When you have been trading for a while, you may find your current contracts with suppliers are no longer fit for purpose. If you find an alternative service for cheaper then you may be able to switch and save some money or potentially haggle with your existing supplier.
Go green
Lowering your energy bills is a sure-fire way to reduce your spending. Switching to LED lightbulbs may be expensive to begin with, but you will notice a drop in your utilities. Going paperless will also save you money on printing and spending money on a paper supplier.
What next
The team at Smith Butler have years of experience in helping businesses make smart financial decisions. We’re on hand for any advice you may need.