Savings, Bloody Savings

If you had to rank the challenges you face in business – what would you put top? A recent RICS survey asked people running small property companies and professional services to do just that. They answered as follows:

  • Cash flow 41 per cent
  • Access to contracts 19 per cent
  • Red tape 11 per cent
  • Bank support 10 per cent
  • The rest were a mix of smaller issues

What does this tell us? First, money is very tight. Secondly, finding work is hard. Thirdly, bureaucracy makes life difficult. No big insights there perhaps.

However, it seems that working capital is not perhaps as big a problem as many commentators consider it to be.. I wonder, though, whether people are confusing cash flow and working capital? The former is the flow of cash in and out of a business. The latter the stock of money to which the business has access so it can operate.

Focusing on cash flow has long been a lesson learned the hard way by many entrepreneurs, partners and directors of businesses of all sizes. Too many companies have got into financial trouble by spending too much in the good times − big salaries, excessive dividends, new offices, fancy cars, smart IT kit, or simply living the good life on expenses. The bubble was always going to burst. It was only a question of when.

So, what can companies do now to reduce the burden of these overheads? Pruning the list of excessive expenditure is an obvious place to start, but what next?

I’ve always believed any company can, if it wants, shave 10 per cent off its overheads. For example, professional services firms often set the wage bill at about 60 per cent of turnover. What about a target of 45-48 per cent?

Or what about relocating? Do you really need smart offices in the centre of town? Could you be more creative with your location to lower your property costs? Or what about ditching expensive car parking spaces or slashing your hospitality budget (clients won’t walk as a result).

If you have already trimmed the fat, finding the second 10 per cent of cuts will mean cutting into the muscle. It will be harder and is likely to mean salary reductions – owners and directors must lead the way. If your shoulders are on the wheel others will follow.

Cost savings take focus, concentration and effort, yet it is the only way forward for many businesses right now. Working smarter is no long an esoteric ideal, but a necessity. While it is difficult to avoid bureaucracy, following a simple rule like ‘touching a piece of paper only once’ will get things done quicker and save time – and time costs money. Similarly, putting off work that is difficult is far more time-consuming than simply getting it done. So, get smart.

You also need to be creative. For instance, talk to your landlord about re-gearing your lease. A longer lease on a lower rent might be more appealing to your landlord than no rent (and having to pay empty rates) if your business fails.

Be ingenious, not deceitful and don’t be afraid to share, listen and learn. You are not alone. Ask others in your network how they have made cuts, how they have saved money and how they have protected their working capital. Never be too proud to ask.

Ultimately, any business that is successful in this market will be looking at every way possible to save money in the short, medium and longer term. All the smaller cuts will make a difference. So if it takes 10, 100 or 1,000 small cuts to survive, just do it.

Why not share your ideas on how to make savings successful in business? It would be great if you would contribute just one idea…thanks

 

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