My Nan always had a saying – “Look after the pennies and the pounds will look after themselves!”
I never fully knew what this meant until I walked into a business that was losing money. A lot of money.
This business had been making a lot of money previously and had started to be frivolous with spending. Branded welcome mats, a posh canteen, capital expenditure rarely challenged and non-production spend not being checked. There were BT pay-phones on the wall in the factory when everybody had a mobile phone. The list went on, and on.
Fast forward a few years and a massive decline in revenue and profits meant the high cost base was killing the business.
I was parachuted in to sort it out.
There was a bad culture in the business of spending money needlessly that hadn’t been challenged for a long time. They were focussed, but clearly too much on revenue growth and not cost control.
I recently started working with a huge business where the CEO had recently acquired it. There was a huge facility with a four storey office block. Again, the business was losing money.
Two of the office floors were empty but the air conditioning was on full-blast. There were very expensive, rented, posh plants all around the office that were adding zero value. There was a long list of similar issues.
Again, a culture of not challenging expenditure at any level in the business wasn’t helping.
It doesn’t matter what size your business is, you have to look after the pennies (the small expenditure) because this creates a culture of being thrifty. If you get a thrifty culture embedded, the larger spend (pounds) will look after itself.
Now, you will never create a market leading business by saving alone.
But, you must minimise unnecessary spend to maximise your cashflow, so that you have the ability to invest when needed or to give yourself some comfort zone when you have a bad month or two.
Here are the top five tips that I use and that I share with my clients:
- Create a budget – monitor expenditure against the budget and manage accordingly
- Prioritise expenses – agree what should and shouldn’t be spent, when it should be spent and who has authority to sign the spend off
- Negotiate and re-negotiate with suppliers – challenge your existing suppliers and look at the market for alternatives
- Embrace technology – see where you can automate to reduce expenditure or overheads
- Monitor and analyse expenses – regularly review to identify saving opportunities
Remember, managing expenditure is an ongoing process that requires diligence and adaptability.
Regularly assess your financial situation and make adjustments as needed to ensure the financial health and growth of your small business.
There will be savings to be had – if you look hard enough.
Good luck.
