As a business experiences growth, it is extremely easy for the business expenses to increase significantly.
As Benjamin Franklin said “Beware of small expenses; a small leak will sink a great ship”.
Whilst some expenses are vital for the current running of the business, or in anticipation of future growth, it is important to remember that for every £1 spent, there is £1 less net profit.
Here are 3 key areas, to keep control of business expenses:
- What is the minimum order value you can send in 1 package/van, in order to keep carriage costs to 5% of sales or less? (i.e. if you send out a parcel, which has a carriage delivery cost of £10, the sales value of the goods has got to be at least £200)
- When was the last time you reviewed your carriage costs compared to a different parcel carrier? Carriage costs will always increase, so it could be time to double check that the prices you are paying are still reasonable and competitive.
Occupancy costsWhen was the last time you reviewed the costs of your insurance and energy? Often business owners can be caught up in the rush of day to day management, that these costs are just left unchecked. How much could you increase your net profit, by just setting aside a dedicated time to review the insurance and energy costs incurred, and source alternative options?
Loan interestHave you got the best deal on your loan? When a mortgage or business loan is taken out, it can often seem like the best deal available, but the financial market is continually changing. What may have been a good deal, may now be a very expensive option. There are 2 key options, for decreasing loan interest paid:
- Access a more competitive interest rate - If you have a good relationship with your bank manager/finance provider, you may be able to negotiate a better interest rate on your loan. If not, it could be worth some time spent exploring loans available with other banks, in order to get the best possible deal
- Increase any additional repayments - This is dependent on the current financial position of your individual business. We would recommend you speak to your Financial Adviser or Accountant before taking any action based on these suggestions.
The following example shows the scale of the savings available
| Loan 1 (4%, no additional repayments) | Loan 2 (3.5%, no additional repayments) | Loan 3 (3.5%, no with £250 p/m additional repayments) | ||
| Loan Amount | £500,000 | £500,000 | £500,000 | |
| Interest rate | 4.0% | 3.5% | 3.5% | |
| Period of loan | 25 years | 25 years | 25 years | |
| Additional monthly repayments | £0 | £0 | £250 | |
| Interest paid over period | £291,755 | £250,935 | £213,126 | |
| Total saving over the period | £40,820 | £78,629 |
Please note: This example is provided for illustrative purposes only and any comments should not be construed as financial advice, guidance or recommendations. This information is not a substitute for advice provided by regulated financial advisers. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this document can be accepted.
In an environment where costs are increasing left, right and centre, maintaining profitability is a real challenge. It is important that you control costs and take advantage of key areas where there is opportunity to make tangible savings.
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