As a business owner how often do you review the costs going out of your business or do you rely on someone else to do that for you?
Costs reduce your profit so you really need to understand exactly what running your business and creating your turnover is costing you.
These are our tips for checking your costs
- Take a copy of a bank statement for a full month. Against each direct debit and standing order write what it is for. Check out any you are not sure of so you know exactly what is being taken automatically from your bank account. Were there any surprises? Were there any duplicates? Was there anything being taken out of your account which you just couldn't identify? Ensure you follow up any of the costs which concern you and cancel those which are unnecessary.
- Look through your suppliers invoices for the last month or last quarter. Many business owners never see their invoices or sign them off so they really don't know everything which is being purchased. Are your suppliers invoicing at the cost you agreed with them? Are they charging you more than seems necessary for delivery? Are there purchases you weren't aware of?
- Do you know what your insurance covers and whether you have sufficient insurance to cover any new equipment, computers or furniture you have bought. Know when your insurance is due for renewal and make sure you have the cover you need. Rather than just renewing with the same company or broker get one or two more quotes and compare them. Cost savings can definitely be made on insurance if you haven't changed company recently.
- Look at your professional fees. Are the costs of your IT support, your website, your professional adviser, your accountant, your solicitor, etc adding value to your business or are they draining it of cash?
- Do you know how much your employees are costing you? Consider overtime, holiday, sick pay and expenses alongside monthly salary. Has your business claimed the £3,000 employment allowance for the last two years?
- Look at your profit and loss report regularly (monthly, quarterly and six monthly) and compare it with last year. Where have your costs increased? Can you explain the increase? Are there are costs which seem high and need to be investigated further?
Every business owner should look at the financial picture of their business and not rely on others to do this for them. If you have a bookkeeper they will be keeping track of the outgoings but they may not think about suggesting a change of insurance company, or contacting the telephone company to see if there is a better price or finding a better supplier of goods or materials who doesn't charge so much delivery.
Every little tweak to your costs will increase your profit so they are definitely worth reviewing from time to time. And if you are not keeping track of your income and expenses on a regular basis then it makes sense to outsource that work to a bookkeeper. Organised accounts will enable you to easily see where you can make savings and increase your profit.