As many business owners are now coming to terms with their pipelines drying up and understanding what support is available from the government, I have spoken to many people in recent weeks about taking advantage of this quieter time to really look at your existing business and restructure it to deal with the ‘new normal’.
Whether the ‘new normal’ is going to be here for a few months or longer nobody knows, but it does present the opportunity to look at the business from the ground up and implement prudent steps in ensuring you can survive for the long term.
Many businesses go through periods of growth where they take on additional costs or make investment decisions for the longer term, such as recruiting additional heads, administration, marketing and software.
I am the first to advocate for looking at investments over the long term, however in my previous business I would task my management team in reducing the operating cost of their divisions by between 10-15% each year, encouraging them to look at the investment decisions and overheads they had taken on, and find better, more efficient ways of accomplishing what they needed, whilst always ensuring that our profitability remained on track.
The term ‘cutting your cloth accordingly’ is very important right now!
Your business will have two types of costs: fixed and variable.
First look at the fixed costs. These are ones that do not change regardless of how much sales you have, i.e. rent, rates, service charges, equipment leases etc.
These are hardest to amend, but don’t give up too easily!
As an example, it is worth speaking to your landlord about your offices and seeing if there are any options about sub-letting or agreeing a temporary rent reduction, or review when your current leases come to an end or if they can be re-cut early.
Variable costs such as staffing, raw materials, commissions, banking charges etc should all be reviewed. Speak to your suppliers and see if you can negotiate better terms.
Some key areas that are important to look at as part of an overall review are:
Look for software charges or magazines that you may be not be using fully or can reduce the quantity of.
- Credit cards
Look at credit card spend amongst your staff to see if there are any old legacy recurring charges that you don’t recognise or don’t need anymore
Review your policies. Are they all still needed? Do they cover the correct turnover figures or excesses given the possible change in your financials?
If your business has taken out any loans, speak to a broker to see if they can be consolidated and/or refinanced on a cheaper rate
Review your tax affairs with a corporate tax specialist, ensuring that you are taking advantage of R&D tax credits, corporate group structures and relevant reliefs
- Direct Debits & Standing Orders
Review all regular payments to make sure they are still valid and needed
- Loss-making products or services
Review the profitability of each product and/or service and any ‘loss-leaders’ to see if you can either improve the margin or look to drop the product/service in the short term
- Directors Drawings
If you are paying yourself fully via PAYE then you may be costing the company more money than necessary. Speak to a corporate tax advisor about whether it is more economical to switch to dividends.
Look at ways of doing your admin internally and see if these can be automated via software tools or outsourced off-shore where possible.
- Low performing sales & marketing channels
Look at your sales people, partners, affiliates and marketing channels to compare return on investment (ROI) and make the appropriate decisions where needed to ensure that your investments are worthwhile
- Staff Costs
Lastly, review your overall staff cost and put together a roles & responsibilities chart to ascertain if any roles should be combined or if focus should be shifted elsewhere.
Once you have investigated all the above areas, its best to put together a forecast Profit & Loss and cashflow taking into account the above changes so you can accurate project the next 3-6 months and the impact it has.
Fusion Consulting is a multi-disciplinary consulting firm focused on fast growth and entrepreneurial businesses. We work closely with business owners assisting them with business advisory, accountancy services, tax, legal services and digital marketing.
We would be delighted to arrange an initial free consultation to help you navigate your issues and assist with a possible restructure.
For more information, please give us a call on +44 203 841 7010, or contact us here.