GDP growth has been forecasted to remain subdued in 2020 as Brexit-related uncertainty, global trade tensions and COVID-19 weigh on the economy.
Basically for most small business owners trading conditions will be uncertain for at least the next few months. The only realistic chance of an upturn in optimism over the next 12 months is if there is a vaccine which is distributed quickly.
Both are possible but don’t I wouldn’t wait around. You have to plan ahead and expect a challenging marketplace.
Regardless of the economic climate, it is always possible to reduce your costs if you are committed to doing so.
There are a few ways you can start planning for the next couple of years and reduce your costs, freeing up working capital.
1. Multi-Year Business Planning with Annual Budget
Business plans are not just for start-ups or when you need additional investment or a loan. A robust multi-year business plan should be the blueprint for your business and therefore, your expenditure.
Planning your expenditure several years in advance is not easy, and do not expect it to be 100% correct. The most important is to understand the upturns and downturns in your business and how this affects your cost base.
Setting clear benchmarks help you plan better in the short term. Each year set a firm expenditure budget and update this at least every three months in a forecast.
Having a clearer picture of expenditure in the future provides you with choice and the opportunity to buy when demand is low.
Take travel costs; for example, massive savings can be made if booked in advance.
2. Zero-based budgeting
Zero-based budgeting is a budgeting methodology that forces a business to review their costs continually. Traditional budgets are created and approved based on historical costs.
With zero-based budgeting, each department starts with no budget and have to justify their expenditure each year. All spending is reviewed and verified before it is approved.
The most significant advantage of zero-based budgeting is it forces you to review your cost base at least once a year and ensures you operate as efficiently as possible.
3. Regular Management Accounts
The importance of producing regular management accounts cannot be stressed enough. Simply processing transactions without analysing the results against a budget or forecast with not help drive business improvement.
Management accounts can be used to leverage your business and can become a key driver in identifying cost savings.
4. Improve Procurement Process
Start leveraging your spending power by negotiating better prices with your existing suppliers.
For instance, if you use several employment agencies to supply temporary staff consider using just one or two.
If you send more guaranteed business you send to a supplier, the more leverage it will give you to negotiate a lower price.
Planning expenditure in advance gives you the opportunity to source goods or services from the broadest possible pool of suppliers at the lowest price.
Over the next couple of years, it may be tough to grow sales significantly. However, you can always improve profitability by reducing costs.
Planning is the most critical aspect of implementing a cost reduction program in the business. Each technique is based on setting targets and reviewing performance regularly. A business who implements at least one of the suggestions above will reduce costs and become more efficient.
If your business spending is out of control, we can help you identify cost savings and build a more sustainable budget. Check out our business growth services and Book A Free Assessment.