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Controlling costs is just as important as making sales for any company, large or small.
There is no viable business if the money being spent outweighs what’s being brought in for a sustained period.
Arguably, keeping costs in hand is even more important for SME companies than large ones, because they typically have fewer options for credit or less accommodating lenders as they try to grow.
Here are four areas for owners to target when seeking to get costs down, ensuring scale doesn’t have to mean increasing spend.
Subscription creep
One of the best ways to sell something is to convince the buyer that it will help them to make money. That’s why there are so many people trying to sell courses online about how to set up money-making schemes of various kinds.
In many cases, unsurprisingly, the cost of the course or tool ends up being more than any money that gets made as result.
Business owners need to be very careful which ongoing subscriptions they take on. A subscription can often end up costing much more than even an expensive one-off purchase. Courses can be a waste of time, or money in some cases.
Make sure anything you sign up to is delivering more value than it is costing – and that’s on an ongoing basis, given the nature of subscriptions.
Rebecca Alford, CFO at Capital on Tap, says that’s the crucial bit: making sure older software keeps delivering when new options come out.
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“Founders are always looking for ways to improve their business, so investing in software that promises to drive growth is understandable,” she said. “The challenge is ensuring these tools continue to deliver value even when new platforms emerge, as businesses can end up paying for multiple platforms with overlapping functionality when fewer solutions may achieve the same results.
“That’s why carrying out a subscription audit every few months can make a real difference. The aim isn’t simply to cut costs; it’s to make sure every subscription is actually needed.”
Be ruthless about cutting back on any software or services than do not boost your profits or are not crucial to ongoing operations.
Know what marketing success is before you spend
The phrase “you have to spend money to make money” does a lot of heavy lifting when it comes to running a business.
There is never any shortage of companies that want to sell you advertisements, search engine optimisation and, increasingly, AI-based products that claim to bring customers stampeding towards your business.
For any marketing spend there must be a clear measure of success set out before you begin, that can give you an accurate picture on whether what you are doing is adding to, or reducing, your profits.
Anything that falls into the latter category should not be tolerated for long at all.
Being a strong negotiator
In running a business, nearly everything is negotiable. Getting good deals with suppliers and making sure you don’t offer overly generous prices to customers can be the difference between a profitable business and one that folds.
Being a strong negotiator is partly a personality trait, but it is still something people can get better at with time and effort.
One way to significantly strengthen your ability to negotiate is to make sure you are talking to multiple suppliers for anything you need, so you have options.
Larger corporations might talk about “supply chain resilience” – there’s not much different about it when you have an SME. Make sure you’re not locked into one provider or route which can up their prices to you at will, or worse, cap your supply.
It is also important to have a good understanding of the industry you are in, in terms of the average prices people are paying for the things you need.
Get your staffing level right
Every business has an optimal number of staff. This is where all the work is done, to the right standard, with the fewest people on payroll as possible.
Employing more staff than you really need is one of the main ways a small or medium sized business can end up becoming unprofitable, or go under entirely.
It is also important to have decision-making processes in place to support staff, improve their work with training, or decide when the time is right to let some depart. Nobody actively wants to let employees go, but it can be the only option for a small business sometimes.
That said, understaffing can be very counterproductive too, as it may mean losing customers because you are unable to deliver to right quantity or quality to keep them happy – which means striking the right balance is key.
