How to reduce business costs

From keeping the lights on to paying your staff, business costs eat up a lot of revenue — and, due to recent developments, those costs are creeping up even more. Making even small gains in several areas can add up to a big difference to your bottom line. So, with that in mind, what’s the best way to keep on top of them? We took a look at 7 ways you can reduce your business costs and improve your cash flow.

1.) Evaluate all of your existing costs

In order to cut down your costs, you first need to sort out which costs come under this category, versus which you can put under direct costs (those associated with producing or creating your product or service). You’ll then have a much clearer picture of your overheads and can look to make adjustments. 

Go through one by one and see where you can make cuts. Look for costs that are either no longer necessary, are too high in price or are open to efficiencies. For instance, say with an accounting platform you’re using — is there a cheaper alternative? By switching your utility provider, could you get a better deal elsewhere? Small adjustments like this can make all the difference in reducing your overall overheads.

2.) Consider going paperless

Paperless operations are all the rage in business at the moment, not least because of the benefits they provide for the environment. But it’s also worth mentioning that having data stored in a digital format with regular backups can be much easier and less costly to maintain than paper systems.

Consider cutting back on paper and ink, and instead opt for cloud-based or physical hard drive solutions, such as a network drive. Data plans for cloud-based storage are fairly inexpensive these days, with Office 365 providing 1TB storage for each user included in all its business plans and rival Google offering unlimited Drive storage on its business plan.

Plus, if you’re paying for physical document storage currently, a digital plan could eliminate these costs entirely. It can also save you having to review reams of paperwork when you’re looking for an elusive document.

3.) Be mindful of your electricity usage

With energy costs mounting, you’ll no doubt be looking for any possible solutions that might help push these costs down, even if it’s only a small saving. We all know that switching to energy-efficient lightbulbs can help save money while also reducing your carbon footprint, but there are other small adjustments you can make to cut your current energy usage. 

For instance, you could install sensors in your business to ensure lights are off in rooms when they’re not being used. You could turn off your computers overnight to reduce their energy cost to roughly around £11 per year per computer. Even reducing your thermostat by 1°C could go some way to reducing your costs, as it’s estimated that overheating can increase bills by 8%.

In fact, going green could help lower your energy bills even more. Businesses are able to claim additional capital allowances when buying energy efficient, or low or zero-carbon technology. You could then recoup some of the money you put into green technologies by receiving money off your business tax bill, as well as through savings to your energy bill as well.

You can learn more about what equipment you can purchase with capital allowances here.

4.) Review your staffing costs

For almost any business, your people are your biggest asset. They’re often a big investment as well. Getting the most out of your staff costs is critical. If you have consistent underperformers, you may want to consider letting them go and using the cash to get more out of the rest your workforce. 

Keeping underperforming employees on staff can be a drain on your resources and employee morale, so it’s often better to deal with the problem swiftly than to leave it festering. Also, by letting go of that member of the team, you might find the remainder are able to work more efficiently — enabling your business to run more smoothly.

5.) Consider subleasing your office space

For those lucky enough to own their own office space, you might have noticed that you have rooms, or potentially even floors of your building, that you don’t use for your business. These can be a great source of extra income if you sublease to other small businesses. The rent could be used to subsidise any mortgage payments, helping to reduce the cost of owning your own premises.

6. ) Designate an official purchaser

At first glance, having a dedicated member of the team specifically designated to handle all purchasing might seem like an extra staffing expense. However, if you assign a shrewd negotiator to the role (someone who isn’t afraid to ask for a discount), they can be dedicated to finding the best deals and bargains for your supply orders and contracts. Because this will be their responsibility, they’re much less likely to just go with a familiar vendor, and more likely to go out in search of the best fit for your needs.

7. ) Make use of word of mouth referrals

From takeaways to taxi’s, we’ve all shared a promo code with a friend.  Think about how you could use customer referrals to cut your advertising costs. Two ways to achieve this involve offering an incentive for referrals, such as a gift card or money off future services, or asking for testimonials that you can use on your website, email newsletter or any other advertising campaign. This can be extended to leaving positive reviews on platforms, such as TrustPilot or Facebook.

Some businesses rely solely on referrals to drive new sales, and if you can crack a good offer with an easy way for them to share it, it could save you a lot of time and money. After all, happy customers are your best brand ambassadors — so use them!

20/09/22: All information is correct at time of publishing. While we want to help as much as we can, the information and documents found here are provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.