SMEs lose billions by not counting the costs
Small businesses could save themselves nearly £16.5billion a year by taking simple steps to cut costs, without impacting on service or staff, according to research by Clydesdale and Yorkshire Banks.
Despite rising fuel and energy costs, more than half of all Small and Medium Sized Enterprises (SMEs) admitted to reviewing their day-to-day costs only once in a calendar year. Those same businesses admitted they could probably be getting a better deal if they tried but lack of time, or misplaced loyalty to their current suppliers meant they were unlikely to do so.
Surprisingly, nearly one in seven SMEs admitted to never regularly reviewing the costs for their largest areas of expenditure.
Electricity and gas prices have risen by 69% and 87% respectively since 2005, and the Government predicts prices will rise a further 26% by 2020 compared to today's prices. The average price of motor fuel has risen 44% in the last seven years.
More than 40% of businesses said that, excluding salaries, materials and supplies represented the most significant cost for them last year. Fuel, IT, rent and energy bills were also significant and, together with materials, represented around nearly half of all SME expenditure.
Earlier this month Clydesdale and Yorkshire Banks introduced a series of measures designed to help businesses grow by lowering some of their costs - introducing fee-free lending for growing businesses and a new switching package with free day-to-day banking for businesses with an annual turnover up to £2m.
Paul Shephard, Director for Business and Private Banking at Clydesdale and Yorkshire Banks, said: "Keeping a watchful eye on overheads is crucial to ensure business growth and profitability. With difficult trading conditions it can be easy to lose sight of some of the simpler ways of helping your business, but regularly reviewing costs should be top of the to-do list for any SME owner or manager."
Last year, those SMEs (businesses with less than 250 employees) that reviewed their regular costs saved, on average, £11,385, by adopting straightforward measures such as implementing energy-saving policies or moving to a paperless office. And with the UK's average yearly salary just over £25,000 - those cost-savings could be ploughed back into the business in the form of new jobs.
Paul Shephard continued: "Small businesses are facing daily cost increases, energy bills alone have risen by more than three quarters. Even relatively simple measures, such as making sure computers are switched off at night, rather than left on standby; all go towards bringing costs down."
The Carbon Trust suggests the cost of keeping a single computer and monitor on each year is £50. By switching it off out-of-hours this is reduced to £15 - a 70% saving.
A recent report by the Department for Business, Innovation and Skills predicted that SMEs which stick to a business plan were more likely to succeed, suggesting that SME owners who plan and regularly review their outgoings would be more likely to grow their business.
Paul continued: "By concentrating on reducing the costs of the basics such as energy and fuel, SMEs can free-up the maximum amount of cash to be used elsewhere supporting their growth. And because these are simple steps, they are not time-consuming; it need be no more than a couple of hours once a month or even quarter.
"Our research shows that there are significant savings to be made without a huge amount of effort. And all of these savings avoid cutting quality, service or wage bills, leaving money to be invested back in to the business, which in some cases is going to be tens of thousands of pounds."