The issue of rising inflation is no secret. Last month, UK inflation hit 9.4%, with prices growing the fastest they have in the last 40 years.
As a result of inflation, many businesses are facing increasing expenses. From energy to supplies, costs have gone up and will likely continue to do so in the coming months.
Higher expenses have implications for companies. They eat into profit, restrict cash flow and cause you to raise prices for your customers. With the pinch being strongly felt in the current climate, it is crucial to combat rising costs to reduce the impact and survive this challenging period.
We have listed our top tips for minimising your costs and counterbalancing inflation.
- Audit your costs
Before minimising costs, you need to understand what is coming out and when. Conducting a cost audit will enable you to uncover your total expenditure, including what you are paying for. Your aim is to identify and eliminate unnecessary expenses.
Conduct your cost audits regularly. You will need a copy of your accounts covering the timeframe you wish to audit. It may also be worth getting support from your accountant.
There are a few tips to follow to ensure your audits are accurate, including:
- Checking the expenses you record actually went through (e.g. not including cancelled payments or invoices)
- Including all outgoing transactions in the timeframe for a comprehensive view
- Classifying your expenses into the appropriate categories (e.g. operating vs non-operating costs or fixed vs variable) as it makes it easier to highlight those you do not need
- Recording the correct amounts for expenses
By creating a thorough record of your expenses for the audit, you will get an accurate picture of how much you regularly spend.
Remember to pinpoint where the expenses come from and what you get. If any are surplus to requirement, aim to cancel the contracts or eliminate the cost from your outgoing payments.
- Find competitive deals
Most businesses will have established relationships with suppliers. However, even if you have been with a supplier for some time, it doesn’t mean they’re necessarily offering you the best price.
With costs rising, it is a perfect time to review your contracts and investigate if there are cheaper alternatives on the market. It’s especially crucial as supplier costs are likely to fluctuate, meaning an increased chance of price hikes.
Research online to uncover other suppliers and what they charge. If a deal is cheap, it doesn’t necessarily mean you should go for it. You need to be sure you will receive the same quality service, or your output could be impacted.
It’s also crucial to consider the long-term implications as many companies will offer attractive prices to new buyers before hiking them up.
If you have found a lower price elsewhere, it’s worth speaking to your original supplier to see if they will offer a better deal. Many will be willing to negotiate if it means keeping you as a customer – and it saves the effort of switching.
- Be tax-efficient
Tax is a necessary expense many businesses must deal with. However, you can take steps to be more tax-efficient and lower your bill.
Firstly, check your salaries, as there are some rules to use to your advantage. For example, if you have a salary of £9,100 per year as a director, you won’t have to pay any National Insurance under the rules.
If you have two or more directors employed within your company, you can take home a tax-efficient salary of £11,908 overall in 2022/23. Your company can then claim the £5,000 Employment Allowance to cover the portion of the employer’s NI.
Using your expenses to decrease tax is possible by understanding thresholds. One example is claiming every expense. Business expenses are deducted from your income when calculating your taxable profit, so including them, all can work in your favour.
It’s also worth being aware of your tax-free allowances and claiming R&D tax credits if you are eligible.
- Increase your prices
Despite the best efforts to minimise costs, there will come the point where you must pass rising expenditure onto your customers. Doing so is crucial to cover the costs required to provide your products and services and manage cash flow.
If you adjust your pricing model, you must give your customers sufficient warning. This will allow you to manage expectations and prevent relationship damage. Aim to explain the reasons for the price increase, as this will showcase it isn’t a decision you’ve taken lightly.
Make sure everyone in the business is on the same page about price changes, so you deliver a consistent message to customers and are available to answer their queries.
With rising inflation affecting the whole country, it’s easy to feel helpless. However, the tips given in this guide should give you a starting point to combat cost increases.
If you are still struggling to manage cash flow, you may need to take more drastic measures, such as redundancies or structural changes. This should be a last resort only.
If you are concerned about increasing costs and your company’s survival, it is crucial to seek professional advice.
Working with a UKBA advisor will allow you to identify ways to reduce your expenditure with an effective cost management strategy that improves your resilience.