Reviewing your cost base is something that you should always look at doing as a business. In this week’s blog we offer up 5 helpful tips for reviewing your cost base.
- Identify all business costs
This may sound obvious, but it’s staggering just how many costs can creep into your cost base, escalate or, worse still, go unnoticed or even ignored.
It’s time to be honest with yourself.
It’s easier to review a clearly defined list of costs than a list of assumptions that you’ve been working with for some time.
- Rethink your definition of ‘essential’
What are your essential costs?
Reviewing your cost base will only prove effective if you challenge your beliefs, starting with what you deem to be essential business costs.
For example, you might believe that that second office is essential to your business growth plans, but is it, or is it simply a case of keeping up with the Joneses (i.e. your competitors)?
Similarly, you may believe that your biggest cost (staff) can only be reduced through redundancies, when a review of your pay scale might simply be in order.
Or perhaps you offer your staff a generous reward structure and/or your directors a lucrative pensions benefit as part of their pay deal, both of which could easily be reviewed and downsized where possible.
Don’t forget to ensure that any changes you make to staff contracts are legally compliant.
- Review all contracts
How many services do you outsource and how much do they cost you?
Due diligence exercises are key to ensuring that you’re not paying above market rate for any services, and help you to monitor when it’s time to go back to the market and consider your options.
Also consider the services you undertake in-house and how much these cost you.
Is there a more efficient way to deliver these services and if yes, what is it?
You may think you’re saving money by retaining a particular service in-house, but consider the possibility that leaving certain services to the relevant experts and freeing up staff time to attend to more valuable work (i.e. winning more instructions) might prove a better return on investment.
- Consider your tax liabilities
The most comprehensive review of your cost base is meaningless without considering your tax liabilities and the tax efficiency of any planned changes.
Engage with your accountant about the best approach to any changes you want to make in your business ahead of making them.
- Exploit the merits of collective thinking
I know a number of firms that invite key members of staff – even all staff in some cases – to brainstorm ways in which their firm could reduce costs and operate more efficiently.
Not only does this exercise engage staff in their business, but it also allows for ideas that management may never have considered alone.
Of course, the degree to which agents share details of their cost base with staff will differ, but it’s far easier for staff to be mindful of costs and help work towards maintaining or reducing them if they all know what they’re working with in the first place.
Savvy business leaders recognise that they don’t hold the key to the best strategic ideas and trust in their teams to help them succeed.