Inflation is rising, costs are going up, and businesses are feeling the pinch. The Consumer Prices Index (CPI) rose by 6.2% in the 12 months to February 2022, meaning a steep and significant increase for firms.
It’s a tough place to be when you know you need to find new ways of mitigating outgoings. As consumers are also feeling the strain, companies must look into how they can continue growing without passing too much of the strain on to their customers. But don’t worry. We’ve got practical tips and advice to help you combat rising costs and continue on your path to business success.
Here are a few things you can do in the short term to reduce your outgoings and keep cash flowing.
Audit your expenditure
The best way to know how to mitigate costs is to understand what money is going out, and why. Auditing is one of the best ways to manage your expenditure, as it will highlight any ongoing unnecessary costs. Do you have any subscriptions that aren’t used? Are there any outstanding invoices? Are you paying the right amounts for the services and products you are using? All these questions (and more!) should be answered in a thorough expenditure audit.
How do you conduct an expenditure audit?
There are a few things you need to think about when planning your audit:
• Occurrence
When you conduct an audit, you should check that the expense you are looking at has actually occurred. If it hasn’t – for example, if the invoice has been cancelled, or the payment never went through – it will be recorded unnecessarily.
• Completeness
This ensures that there are no expense transactions missed to make sure there are no outstanding records.
• Classification
Making sure expenses are classified is essential. This is necessary for appropriate accounting.
• Cut off
Ensuring that the expenses are recorded in the correct accounting period.
• Accuracy
Expenses need to be recorded as the correct amounts.
We are experts in guiding our clients through the auditing process in challenging or changing times. Get in touch to find out how we can help you with your auditing processes.
Find the best deals
Businesses need to have good relationships with their suppliers to ensure fast, consistent supplies and preferential rates. That said, there’s nothing stopping you from shopping around. Taking time to look for better deals with services, products, and utilities will help your cost expenditure in the long run.
Where can you find the best deals? Take a look online, ask around and do some research into the industry. There are plenty of lower prices out there, and since costs are going up, the market is becoming more competitive. Remember these tips to make sure you get the best possible deals for your business:
• Don’t always go with the cheapest
But aren’t we supposed to be looking for lower prices? Yes and no. If a deal is surprisingly cheap, it might not necessarily be the best option for your company. Price aside, you need to make sure that you’re aware of what your supplier is offering, whether it’s the right fit for your business, and how good their product or services are compared to their competitors’ efforts. For example, you don’t want to invest in inadequate IT services that lead to the installation of systems and processes that are not fit for purpose and need adjusting further down the line.
• Think long term
Some companies will offer you a great deal for the first few months but then hike up their prices once you’re in a contract. Before signing on the dotted line, make sure you understand the terms and conditions of your agreement, and how much you can expect to pay in the months and years to come.
• Create strong relationships
They don’t say business is about people for nothing. Creating long-standing relationships with suppliers will help you get the best out of them. They may even reward your loyalty.
• Go to your current suppliers and ask for a better deal
Most companies don’t want to lose business. If you don’t ask, you don’t get. Talking to existing suppliers will help you find other options for your business and could help to reduce expenses.
Stay tax efficient
Tax can be a burdensome expense. Knowing insider tips to help lower your tax costs is essential to cutting your outgoings. There are a number of ways you can lower your tax outgoings. You should start by:
• Checking your salary levels
Making sure you’re aware of how your employee’s salary affects tax is essential, and there are some regulations and allowances you can use to your advantage. For instance, if you have a salary of £9,100 per year as a director, you won’t have to pay any National Insurance (NI) on top. If you have two or more directors employed within your company, you can take a tax-efficient salary of £11,908 overall in 2022/23. Your company can even claim the £5,000 Employment Allowance to cover the portion of the employer’s NI it would otherwise incur.
• Using your expenses to decrease corporation tax
Expenditure doesn’t have to be a negative thing. It can help you reduce your corporation tax. There are thresholds to be aware of and ways to monitor your expenditure to ensure corporation tax doesn’t cause problems for your cash flow at the end of the tax year.
You can find out more on how to reduce your corporation tax bill here.
Increase your prices
Yes, costs are going up. It’s only natural that businesses raise their prices too. But you can’t decide to increase your fees at short notice without any sort of backlash. Managing people – and their expectations – is key to ensuring a smooth transition to new rates or charges.
• Take your time
Companies should not change their pricing structures quickly, or without notice. You need to tell consumers well in advance that you are making these alterations. Contact customers directly to make them feel valued and make sure you have the resources to provide answers to any of their questions.
• Justify the increases
If you put your prices up, you need to tell people why. It’s important that you explain the reasons behind the change.
Perhaps you’re investing in new products, services or equipment that will improve the quality of what you offer. Maybe the margins on your existing sales are simply too low, and you need to increase your fees to cover rising costs. Either way, be honest with your customers where it makes sense to do so, and focus on how and why they are still receiving excellent value.
• Stay informed
Make sure your whole organisation knows about the price increase and are ready to speak to your customers about any concerns they may have. This will demonstrate cohesion and professionalism at what may be a difficult time for everyone.
The last resort
Redundancies should only be on the cards when you’ve explored all other options yet still do not have the means to keep some of your employees on your books.
When there is no other choice, redundancies will certainly help to lower expenses. But the process of laying off staff needs to be handled with the utmost care and compassion if you want to avoid issues later on.
It’s essential to get professional advice at this stage. The team here at Dartcell can help with this difficult situation and advise on the best ways forward for everyone involved.
When it comes down to numbers…
Precision is key. Making sure you are up to speed with your business expenses and have explored different cost options will help you decide which foot to put forward first.
Our team can help you navigate your next chapter with confidence. Contact us now to discuss your situation in greater detail.