With inflation hovering at almost 8% on average, businesses have no choice but to grapple with escalating operational costs.
It’s been a rough ride, and many businesses will have already cut costs and unlocked newfound operational efficiency.
We’re not out of the woods yet, but there is light at the end of the tunnel – here’s how to manage increased costs in your business amid rising inflation and the cost of living crisis.
Digging deep into your expenses
Expenses are the principal costs associated with running a business. It’s imperative to dissect each and every business expense you incur, no matter how minuscule they might seem.
Many business owners are surprised at how these smaller expenses accumulate over time and significantly impact overall financial health. By examining seemingly small and insignificant costs, you might identify unusual patterns, spot irregular expenses, and highlight areas where you could cut back costs.
Examples include stock purchases you struggle to sell, subscription products you don’t use, including add-ons, excess packaging, office supplies and staff costs, to name but a few.
The trick here is to trim the excess without compromising on the quality of your product or service.
Boosting efficiency
“Efficiency” may seem rather elusive, but it essentially means streamlining processes and activities by trimming the unnecessary. By enhancing operational efficiency, you can make significant savings – and we’re talking about both time and money.
This could involve anything from adopting automation technologies to take over routine tasks to thoroughly reassessing your supply chain to identify potential areas for refinement. It might be as simple as sorting through your own processes and moving your office, workshop or other small business premises around.
If you employ staff, consider restructuring your team and positioning individuals where they can shine to boost productivity.
Checking supplier contracts
While loyalty is indeed a virtue, it’s essential to strike a balance in your supplier relationships, especially when costs creep up.
Of course, inflation strikes everyone, including suppliers who might be forced to raise costs – but they may do so at different rates.
Frequent reviews of your supplier contracts can assure you that you’re getting the most out of your money. New suppliers may offer better quality or more cost-effective options.
As increasing costs close in, keeping an open mind about renegotiating contracts or exploring new partnerships is essential.
Refining pricing strategies
The thought of revising your pricing strategy can be somewhat daunting.
Bear in mind, though, that this doesn’t simply equate to hiking up your prices. It could involve introducing new products or services, implementing tiered pricing structures that cater to different customer segments, or offering attractive discounts for larger purchases.
The objective is to find creative ways to increase your revenue to counterbalance the cost rise. However, it’s important to tread lightly, maintaining a delicate balance that avoids deterring customers.
Harnessing technology for cost management
From accounting software to AI-driven analytical tools, tech can help streamline your processes and provide insightful data to drive decision-making.
Consider investing in reliable accounting software. It can automate mundane tasks, reduce errors, and provide real-time financial data.
By doing so, you can free up time for strategic planning and make informed financial decisions swiftly.
Creating a financial buffer
Establishing a financial buffer or emergency fund can provide a safety net if costs rise unexpectedly or your income fluctuates. Oftentimes, reducing expenditure can have a knock-on impact that causes your business to shrink.
We provide finance and accounting support for SME businesses. Find out more about our outsourced accounting services and part time CFO services tailored to your needs. Talk to us about your business, get in touch on 0118 911 3777 or email info@teamsas.co.uk.
Use of this information is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.
