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How to deal with rising costs: six ways to boost efficiency
At a glance
- Inflation and other cost pressures are keeping confidence down among SMEs. Taking steps to keep a lid on fixed costs can help you maintain profits when margins are under pressure.
- Having a full understanding of your cost base will reveal where you could afford to cut back. You can also look at ways to improve efficiency, for instance by encouraging collaboration across teams.
- Finding ways to reduce waste, for example by using tech to eliminate errors, and disciplined financial planning can also help.
With inflation still high, small and medium-sized enterprises (SMEs) must prepare for more operating cost increases and squeezes on profit margins.
This will be another knock to SME confidence, which is still in negative territory, according to Federation of Small Business data.1 Furthermore, the number of firms planning to expand or hire has halved since last summer, according to figures from the Association of Chartered Certified Accountants and The Corporate Finance Network.2
Faced with these market conditions, many SMEs will be looking for cost improvements and efficiencies to help protect their squeezed margins. Here are six ways to keep a lid on costs in your business.
1. Gather evidence
Inefficiency is often a by-product of not understanding all the information you have at your disposal. Knowing your cost base and processes better will help you understand how to improve them. Start by asking your staff about the causes of rising costs, and how to limit them. But gather regular data as well, such as line-by-line item costs, and look at ways you can reduce each.
2. Break down silos
Create opportunities for cross-departmental conversation and collaboration to help break down silos, as this enables a holistic approach to cost-cutting. For example, when one department hands over a task or customer to another, is it seamless?
Be sure to model any cost-cutting initiative and consult with other departments before implementing to make sure it doesn’t have unintended consequences or negatively impact other parts of the organisation.
3. Increase staff morale to reduce churn
Low morale and high staff turnover can often cause poor productivity and inefficiency. Giving your staff clear career development pathways should encourage them to stay and support the business.
People leave managers, not companies, so turn your managers into coaches who aim to develop and mentor staff. Employees also respond well to firms with a well-defined purpose, so communicate yours clearly and regularly. These initiatives should help boost productivity, as well as cut recruitment costs and other inefficiencies associated with staff turnover.
4. Embrace technology
Laurie Burrows, founder of an eponymous business training and mentorship company, has been able to optimise resources and boost efficiency by consolidating technology and embracing artificial intelligence (AI). “For example, we’ve consolidated all our tech tools onto a single platform,” she says. “This has allowed us to handle everything from emails to sales pages in one place, saving time and money.
“We’ve used AI to automate repetitive tasks, crunch big data and gain valuable insights, helping us streamline operations and optimise resources. For example, we use AI to generate topic ideas for our social media marketing. It helps us predict which offers we should focus on selling and which are doing less well, helping us reduce costs by cutting unprofitable offers quickly.”
5. Radically cut waste
Waste is often the biggest enemy of profit margins in an SME. Kate Davis, CEO of Meraki House Consultants, warns that quick fixes to the problem of rising costs can end up costing you more in the longer term.
“Often businesses panic and invest in areas such as another new piece of software, or replace ‘problem’ staff,” she says. “But many solutions lie within the business and needn’t cost a penny.”
The seven types of waste typically found in manufacturing have been well researched and documented as part of the lean management process.3 But other sectors are starting to apply a similarly disciplined approach to cutting waste. For example, in service businesses, consultants have identified that waste also typically occurs in seven areas:
● Duplication: a lack of clear job descriptions and roles can mean multiple employees are working on the same task, leading you to pay for more staff time than you need and wasting talent. Clarify roles and look at how to eradicate any potential duplications.
● Disjointed customer journeys: Kate says: “Companies often lose business when it is not clear what a potential customer should do next. [Or] when moving between departments, information is lost on the way – we’ve all had to describe the same problem repeatedly on a phone helpline.” Look for ways to smooth the user experience, creating efficiencies for you and your customers.
● Delays: delays in providing information to customers, such as taking too long to respond to leads, deliver a proposal or follow-up an enquiry call can damage the customer relationship and create waste. “It’s a competitive market – those who are first, win,” says Kate. Identify all such delays and eradicate them to make your business more efficient.
● Unclear communication: “Unclear verbal or written communication between teammates can mean hours wasted on projects with uncertain or unintended outcomes,” Kate says. Make all your communications are as clear, straightforward and joined-up as possible.
● Errors: use checking processes and automation to reduce mistakes, such as a customer receiving the wrong product or invoice.
● Lost opportunities: “Often we do our most efficient business with repeat customers,” Kate says. “In pursuing new leads, businesses sometimes forget to up, down or cross-sell with loyal, existing customers. This is a key waste area in service businesses and can be managed with a good customer relationship management system and processes for re-engaging with those contacts.”
6. Disciplined financial planning
In an era of high inflation and squeezed margins, careful financial planning for you and your business is essential. A financial adviser can, for example, help you avoid unnecessary tax payments and take advantage of tax breaks and efficiencies. This includes helping you plan, invest and take income in the most efficient way.
A financial adviser can also use cashflow modelling to help you plan your personal budgets and stay on track with your financial goals as your situation and economic conditions change.
Speak to us today to find out more about our approach to financial planning and how it can help your business.
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Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
Sources:
1Federation of Small Business, ‘Small Business Index’, May 2023 (survey of 681 small business owners and sole traders between 27 March and 11 April 2023)
2Association of Chartered Accountants, ‘SME Recovery Tracker’, January 2023 (survey of accountants cumulatively advising some 12,348 SME clients, and in-house finance professionals working across 51 private businesses; poll closed 3 January 2023)
3Lean Enterprise Institute, ‘7 Wastes’, accessed June 2023
SJP Approved 05/06/2023
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