Financial discipline is important to keep cash flowing through your business. Keeping a tight lid on your costs can go a long way in helping you establish a secure footing for your start-up business. Our helpful checklist will show you the areas to target when you're trying to understand or reduce business costs.
- Identify all your major costs, such as staff, raw materials and other supplies, premises, utilities, travel, transport, capital expenditure and financing costs.
- Decide which costs to control centrally and which should be the responsibility of individual departments (eg production, sales).
- Involve employees by explaining what you are doing and encouraging cost-saving suggestions - consider offering incentives.
- Establish budgets and monitor actual costs against budget as part of a systematic cost-control process.
- Review how activities and costs contribute to achieving your business objectives and quality standards.
- Benchmark key activities and costs to identify long-term opportunities for significant cost reductions.
- Consolidate purchasing with a small number of suppliers and negotiate improved terms and discounts; check invoices for overcharging.
- Weigh up how much stock you need to hold. Can suppliers offer 'just-in-time' delivery, helping you reduce warehousing costs? Tying up cash unnecessarily in stock you may not need straight away or which is at risk of degradation is easily avoidable.
- Eliminate unnecessary activities, duplication of effort and avoidable waste; reduce obvious overcapacity.
- Avoid travel costs where possible. Can you hold video or phone conference calls and meetings instead of travelling to clients?
- Control excessive costs - for example, over-specified supplies or excessive spend on business lunches.
- Identify opportunities to improve efficiency; use time-saving tech, streamline processes and consider outsourcing non-core activities.
- Design products and production to use standard components and efficient processes; improve quality control to minimise waste.
- Identify opportunities to re-use or recycle materials and waste. For example, reusing packing, collecting rainwater from the roof to flush toilets or re-purposing off-cuts to create other products. You may even be able to sell your waste to other companies.
- Improve financial control; refinance expensive overdrafts with loans and minimise working capital.
- Before making any changes, assess any potential downsides, such as damaging morale, reducing quality or creating long-term vulnerability.
Accounting software makes it easy to keep records of your costs. Many popular small business accounting packages are designed to help with budgeting and cash flow forecasting, or offer this kind of functionality in optional add-ons.