There’s no two ways about it, small businesses have it hard. Margins are smaller and mistakes more costly both in the short and long-term. Therefore, running a tight ship where everyone is accountable for everything their involved with is essential, but there are ways to improve efficiency without appearing to be an overbearing dictator and ultimately losing the respect or loyalty of your staff.
Every business survives or thrives because of their outgoings just as much as their income. You can have the highest turnover of all your competitors, but it’s nothing but vanity if your margins are poor. There are some key areas where you can tighten the purse strings and some important areas where you definitely shouldn’t cut corners.
Never cut corners with staff wages. The saying ”you get what you pay for” is never more apt than when it refers to your staff costs. Good staff retention lowers your recruitment costs and people are more likely to fulfil their commitments to your business if they receive proper compensation for their time. Low wages produces low morale and increased time off work so think twice about recruiting low paid workers as a solution to an immediate money problem because it’s a false economy.
Areas to Cut Costs
Operational costs are the main areas to focus on and that means things like capital expenditure. Personally, I’ve always been a fan of leasing property and vehicles rather than committing large amounts of capital that could be more productive if spent in areas of the business that are more likely to increase a return in the next six or twelve months. Leasing options exist for everything from a car to an entire logistics fleet or even machinery within a business, but the risk and capital expenditure lays with the car leasing business rather than yours.
Leasing contracts usually come with maintenance included in the deal because they are usually new cars still under warranty and that is another cost removed. Ownership used to be a sign of a secure business, but today it’s a sign of money mismanagement because there are many more immediate uses for money that would otherwise be tied up in equity and depreciating.
Reorganise Debt Commitments
Nearly all businesses have some form of debt. Whether it’s a company credit card or bank overdraft. Re-examine your business’ commitments and consider what could be easier and more cost effective paid off or transferred to a lower rate credit agreement. When considering finance, an efficient business should not commit to restrictive credit agreements that have the potential to place a business at risk because of high monthly repayments. One bad month could leave a business struggling for a few weeks, but have three or four bad months in a row and you could find your options are even less appealing.
A business cash advance is a flexible way to receive investment and it doesn’t mean committing to monthly repayments that your business needs to make whether it makes its usual sales quotas or not. Cash advances only require a percentage of your business’ sales, so a good month means returning more of the investment and a bad month means your business has a much lower commitment. This kind of flexibility can be the difference between surviving long periods of declining revenues or folding after a few months with minimal income and high outgoings.
Shaun Thomas is a company director who has experienced both success and failure during his career. He now helps SMEs secure low risk funding from Liberis.co.uk.