Article by Laura Walshe of The Business Debt Advisor
Small and medium sized enterprises (SME’s) make up the majority of businesses operating within the UK.
In 2018, there were 5.7 million private sector businesses operating within the UK, down by 27,000 compared to 2017.
This is the first year-on-year fall in the number of businesses since 2000 and is possibly a sign of the uncertainty which the UK faces in the present climate. Uncertainty is never good for business and in the coming years we could see many more SME’s falter, or possibly fail.
However, failure is not inevitable. There are a number of positive steps that businesses can take to reduce the risk of failure, and four specific areas which could help improve profitability.
These are reducing costs, boosting turnover, increasing productivity and increasing efficiency.
Reducing Costs
The main areas for consideration in reducing your business costs are:
- Suppliers – Are you getting the best deal from your existing suppliers? Could you negotiate better terms, or do you need to consider changing supplier completely?
- Premises – Are you getting the most out of your existing space? You should routinely review the terms of your lease to check for a break clause, which will allow you to negotiate a better deal, or an early exit if it would be beneficial to relocate.
- Production – Review and adapt your processes so they are as streamlined as possible, while retaining quality outcomes. Could the same outcome be achieved in fewer hours or with a reduced spend?
If you want to overhaul your business then activity-based costing is an effective way to find out the real cost of your business activities.
By apportioning all of your overheads, such as rent and salaries, to specific departments you can assess the profitability of each one.
Boosting Income
If possible, review your pricing structure on a regular basis but test proposed increases before they are made permanent.
Consider the Pareto Principle and how it can apply to your business (commonly known as the ‘80/20 rule’).
In simple terms, this could mean that 20% of your customers create 80% of your income.
By focusing your efforts on the most profitable customers you could increase profitability overall.
Increasing Productivity
Consider what processes you can put in place that will enable you to get the most from your existing resources (i.e. your staff).
By keeping management information you can easily monitor performance and address any issues quickly.
Communicate your productivity targets, how these are measured, and set clear goals.
You could also consider introducing incentives – subject to quality reviews – so that outcomes are not affected by the increased speed of delivery.
Increasing Efficiency
On a regular basis, review whether or not there are more efficient ways to operate.
For instance:
- Automate tasks wherever possible
- Audit your processes and map out workflow
- Discourage unnecessary meetings
- Improve customer experiences
It might also be useful to learn about how a comparable business deals with similar issues. If there is a generally accepted benchmark then assess where your company sits against this.
For more useful information please visit our website.
If you have any concerns about the viability of your business, please fill out our Contact Form and we will be in touch.
Alternatively, call us on 0800 781 0990. Our team has extensive experience and can arrange an initial consultation at no cost, usually on the same day.
