Here at EFM, we ask our Associates to share their knowledge and expertise on certain topics that can help to improve your company’s financial management. In this article, Manchester based Finance Director, Steve Plant, discusses the ten ways to increase your company’s margins.
Successful firms are constantly searching for ways to trim their costs and increase their revenue, in good times and bad. In this article, EFM will take you through the steps you can take to make your business leaner and more profitable.
- Carry out an income and expenditure review
Review your outgoings and incoming revenue. This will highlight any costs that seem particularly high and any parts of the business where your revenue has reduced. It is important that every business cost is justified as necessary to current operations – a thorough review will generally highlight costs that can be eliminated e.g. software subscription costs for applications that are no longer used.
- Streamline your running costs
Could you cut your utility bills by using energy more efficiently or by changing supplier, for example? Review your travel costs and consider how much of your work could be done online or at home. Insurance is another example where a simple cost comparison at renewal can yield significant savings.
- Assess your staff bill
If your employees are not busy all the time, look for ways to maximise their utilisation, or indeed reduce staff costs. Ask them if they might be open to taking on additional responsibilities or voluntary measures, such as reduced hours or flexible working. Take legal advice if considering changing employees’ terms and conditions.
Review whether any functions currently carried out in-house can by successfully outsourced and paid for only when needed. EFM can supply book-keepers, credit controllers and payroll services as a cost effective pay-as-you-go service.
- Improve your purchasing
Assess the cost of any materials needed to supply your goods or services. Could you reduce this without making your products less desirable, by varying the specification of your raw materials? You could also consider putting work out to tender to find more cost-effective suppliers. Review your utility providers – it’s now much easier to compare tariffs and switch supplier.
Carry out a periodic review of major suppliers to the business and assess whether alternative suppliers can offer a cost advantage. There is also no harm in asking existing suppliers to sharpen up their pricing or offer better credit terms.
- Reduce your stock
Consider whether you can cut back the level of stock you hold, for a ‘just-in-time’ operation Can you procure or manufacture quickly enough to satisfy customer orders without having goods sitting in storage for long periods? Aim to keep just enough stock to service your customers’ needs.
It is helpful to assess how many weeks forward stock you hold in each major stock category. Once you know the number of forward weeks stock you can then set in motion a stock reduction plan.
- Look for growth opportunities
If competitors are falling by the wayside, look for ways to take advantage and expand into different parts of the market. Now might also be the time to seriously consider mergers with competitors to strengthen your position.
It is worth thinking about whether your business can offer additional goods and services to existing customers as it is always easier (and cheaper) to develop your existing customer base rather than seeking out new customers.
- Protect your marketing spend
Focus your marketing efforts on your most profitable customers and calculate how much revenue you need to make for your advertising promotional spend to be worthwhile.
Consider using social media such as Facebook, Twitter and Instagram as a cost-effective method of reaching new customers.
- Boost staff productivity
Home and work worries can make employees less productive. Support your staff with training and try to increase morale by offering simple rewards and incentives. Praise for a job well done goes a long way and costs nothing!
- Protect against currency fluctuations
If you do any business overseas, protect your company from adverse exchange rate fluctuations by trading in pounds where possible, setting up a foreign exchange bank account or drawing up a forward contract with your bank (buying an amount of currency at an agreed exchange rate on a fixed date).
- Keep on assessing
Review your spending regularly and keep seeking ways to improve income. Make sure you regularly take stock of where costs can be trimmed and your revenue boosted.
Struggling for ways to improve your company’s finances and need support in increasing your margins? EFM is here to help you.