For well over 10 years inflation has been at historic lows. For much of the time, it has been possible for businesses to absorb changes to costs rather than having to pass these on to customers.
Now, this has changed.
We are now seeing fuel shortages increasing material costs, and labour shortages are driving wages upwards. So, what can business owners do to keep their business profitable?
Nobody likes prices going up, but your rational customers will understand the reasons for increases in your price. It is important to adequately explain the reasons behind the increase if it is higher than inflation numbers. Perhaps your industry is more affected than the CPI weighting.
Yes, this may cause some of your customers to shop around, but this is not necessarily a bad thing. The customers most likely to shop around for the lowest available price are almost always the ones who will be more challenging to deal with and the least appreciative of the value that you provide to them. This “shopping around” will also be an opportunity for you to gain new customers who see the value you are providing.
It’s time to review your costs. Pull out your financial statements. Get your accountant to help you with this if you don’t feel confident to go through and fully understand them yourself. If this is the case, get in touch with us at Advivo: this is what we’re here for.
1. Things you don’t use
This doesn’t just cover things you are paying for but don’t actually use – if you are paying organisations for a service and you don’t know who they are or what exactly they provide, then it’s time for some conversations.
Talk with your team and see if anyone knows what it is and if it is necessary. If nobody does, then talk with the provider and find out who they are and what they are providing. If it goes to this extent, this is more than likely wasted money, which is hurting your business at the bottom line.
I frequently hear stories about businesses still paying for old photocopiers, telephone lines, and subscriptions that are no longer in use or relevant to the business.
2. Things you still use but the usage has changed
For example, if you find that most of your staff is now working from home, why not consider downsizing your office footprint now that the space is no longer used?
Another example could be checking your software subscriptions, such as Microsoft licenses, and adjusting them for any changes. This is often forgotten and there can be big savings in adjusting these for current staff levels.
3. Areas where prices are rising the most
These are often areas where you are heavily reliant, such as staff and vehicle running costs. Review your organisation structure and see if job roles are still relevant or redundant. Certainly, don’t cut good people out of your organisation, but see if you can do things more efficiently to make better use of their time. Ask staff with company vehicles provided to leave them at the depot overnight and plan their work schedules to minimise travel distances between jobs.
As mentioned before, this is a detail-related exercise and one that is all-too–often put off because of the amount of time it takes to do right. The devil is in the detail, and that is also where you will find significant opportunities. If you need help getting started on this, Advivo Business Advisors and Accountants are here to assist.