Keeping costs down | NatWest


 

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Add your signposting title here… Managing costs

Managing costs is one of the biggest challenges for fast-growing businesses.

It’s tempting to throw everything at securing new commissions, but overspending can torpedo a growing company. We ask business leaders how they keep a lid on costs.

Their five steps are outlined below, from getting a good deal on fixed costs to maximising your marketing spend.

Five essential steps to control costs

Know your numbers inside out

Rapid growth is great for increasing profits, but it’s also good at absorbing working capital. It’s essential to keep your finger on your financial pulse by having proper accounting processes in place.
 

“Surprises cost money,” says Steve Govey, client partner at Beavis Morgan, a specialist accounting, tax, restructuring and business advisory group for owner-managed businesses. “They force you to make short-term decisions, which aren’t always good.”
 

Keeping proper records means you can monitor patterns and trends, as well as keeping tabs on income and expenditure. Records could, for example, reveal that you have a problem with bad debt. According to Govey, UK SMEs wrote off a combined £5.8bn in bad debt in the past financial year alone.

“If you do have bad debt, at least claim the VAT back on it,” he says.

Get the best deal on fixed costs

Some costs simply cannot be avoided. But they can sometimes be mitigated by negotiating the best deal. For example, Butterick Company, which sells US-manufactured sewing patterns in the UK, uses a broker to negotiate its utilities.
 

“It saves us negotiating directly,” says Sue Haft, Butterick Company’s managing director. “And we find they save us money.”
 

For some fixed costs, it’s possible to save – or even make - money by reselling. Butterick Company owns its Portsmouth headquarters, having downsized in the 1990s when the home-sewing market took a downturn. They restructured to use more freelancers during recent expansion, and the company now rents space to tenants. “That contributes significantly to our revenues,” says Haft.


Business premises can also represent a large fixed cost to your business, so it's worth thinking carefully about the type of premises and whether to buy or rent.

 

Business premises

Make your marketing spend count

Discretionary costs such as marketing are often the hardest to get right, particularly when you’re growing quickly. Opportunities to raise your profile also absorb precious time, so it’s essential to be super-selective, says Richard Heyns, founder and CEO of Brytlyt, an extreme data processing and analytics firm.
 

“The marketing money you spend needs to be focused on getting you in front of customers,” says Heyns, who now uses much of his marketing budget on skilled external telesales people rather than, for example, appearing at conferences. “We spend about £1,000 a week on telesales,” he says. “It’s worth it.”
 

However, making sure your marketing spend is focused on the right things isn’t always as simple as prioritising telesales over speaking slots. Sometimes the split between fixed costs and discretionary costs isn’t clear-cut.
 

Bruichladdich, the hugely successful Islay whisky distillery brought back from the dead in 2000 by a consortium of private equity investors, chooses to pay more for certain ingredients and services. It uses Islay-grown barley, even though the Islay grain yields considerably less than barley grown on the Scottish mainland. It also bottles its spirit on Islay, despite the fact that doing so is more expensive.
 

The extra spend is essentially a marketing cost. Having a barley-to-bottle production process on Islay fits Bruichladdich’s profile as a producer of high-end premium spirits – the same profile that turned an abandoned Victorian distillery into a multimillion-pound business.

Consider all your financing options

Companies need to be aware of all the financing options open to them. Smoothing cash flow through appropriate leasing is one option highlighted by Steve Govey, client partner at Beavis Morgan, a specialist accounting, tax, restructuring and business advisory group for owner-managed businesses, he also encourages companies to consider research and design tax credits. These are government tax breaks designed to incentivise companies to invest in research and design. Contrary to what many people believe, they are not limited to science-based activities.
 

“They can often be claimed in far broader areas, and various enterprises could qualify for significant tax reductions and gain a cash-flow boost,” says Govey.
 

Other types of grants can also mitigate the costs associated with expansion. In a booming home-sewing market, Butterick Company is developing its export market in Europe, meaning more travel to overseas trade shows. “Wherever possible, we try to get travel grants,” says Haft.
 

More about funding options

Don't scrimp on staff

Staff who are a perfect fit are worth their weight in gold. Sometimes it is possible to save on staffing costs by using freelancers. Butterick Company takes this approach, with staff who work a fixed number of days each month, for marketing, PR and social media. “We get a lot of expertise for our money,” says Haft.

 

It’s important to remember that nurturing staff isn’t just about money; it’s also about spending time on things such as proper appraisal policies. Recent research from the salary-benchmarking site Emolument shows that employees of small companies tend to be happier than employees of larger companies.
 

“That’s because they have direct access to management,” says Govey. “It costs little to make use of that.”

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Whether you want to take action or simply want peace of mind that your finances are in good shape, we can help you make informed decisions about what you feel is right for you and your business.

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What next?

Want to look at funding options for your business? We have a range of loans and more

Funding options

Deciding whether to rent or buy your business premises is a key decision when it comes to costs

Business premises
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