Minimising waste to help maximise your profits remains a key a challenge in business. “Potentially, time and money can be wasted in most areas – wages, recruitment, stock, materials, premises, energy, IT, travel, marketing, bookkeeping,” explains Martin Dunne, partner at London-based chartered accountants, Sayers Butterworth LLP.
“Often owners try to save money doing everything themselves, but it can be a false economy,” he adds. “Outsourcing can be more cost effective, while freeing up time to do things that generate more value” he says.
Waste control
Some businesses fail to minimise their costs because they stay with the same suppliers, others get into bad habits or don’t assess their spending enough. Dunne empathises: “Ideally you should assess your costs every month, but owners have so many demands on their time.”
Doing your annual accounts provides the ideal opportunity, he says. “You can look at your costs in key areas and compare them to last years’ figures. If there’s been a significant increase you should ask why – and consider what to do about it. Rule nothing out – savings can often be made on so-called ‘fixed costs’, such as energy, telecoms, etc. Saving small amounts in various areas can make a big difference. It can help to ease your cashflow and free up money that can be put to much better use.”
Energy saving measures
“Alongside shopping round for the best deal from energy suppliers, which has proved effective, we’ve installed circulation fans to re-distribute warm air in our factory,” explains Matt Deighton, managing director of Manchester-based bespoke furniture manufacturer Sofas by Saxon.
“Because of the high ceilings, warm air generated by our heaters was rising and not efficiently heating our factory. The ceiling fans re-circulate the warm air, ensuring a more consistent temperature at ground level, resulting in more efficient use of our heaters.”
Another simple waste reducing measure, Deighton says, is ensuring the timing and thermostats on heaters are set correctly. “We’re also considering linking our loading doors to the heating system, so that it switches off automatically when the loading doors are opened.”
Smart thinking
Leicester-based Anokhi House of Sarees specialises in luxury sarees, wedding lenghas and salwar-kameez (traditional Indian outfits). “Our supplier phoned one day out of the blue to tell us about the benefits of smart meters,” recalls owner Karan Modha. “It was free; the engineer came and installed the smart meter very quickly, with minimal disruption.”
Modha says installing the smart meter gave him a better understanding of his energy consumption and has saved him time. “Previously, I was wasting time contacting my supplier with meter readings after receiving estimates. Now accurate readings are sent automatically. And we no longer overpay now.”
An online portal allows Modha to better understand his business’s energy consumption. “In summer our air conditioning is on all day sometimes; our heaters are on during colder months, obviously. Some months we use neither, so we use less energy. Now I can see exactly how much we’ve used.”
Business benefits
Paying just for energy used is much better for his cashflow, Modha says. “Budgeting is easier, too. And we’ve managed to make energy savings. For example, our window lights are left on 24 hours a day to show off our sarees. But they’re LED now, which has helped to reduce our energy bills.”
Allen Creedy, Federation of Small Businesses energy policy chair, says energy efficiency is the best way for small businesses to save money on their bills. “Smart meters provide the potential for small firms to understand their energy use, so they can make informed decisions about their investments and, ultimately, control and reduce their consumption. With the help of a smart meter, and with the right support, many small businesses should be able to take advantage of lower tariffs at off-peak times and energy efficiency savings”
The scheme is being rolled out across the country and businesses with fewer than 10 employees, along with every household in Britain, will be offered one by their energy supplier by 2020.
Cutting costs
The idea for Sarah Watkinson-Yull’s designer shoe business, Yull, came in 2010 while studying at the University of Westminster. A year later, Prince’s Trust funding enabled her to start manufacturing her high-end shoes and she opened a studio in Battersea last year. Waste has always been top of her list of priorities.
“Cutting shoes can create a lot of wasted leather, so we re-use as much as possible in our designs,” she explains. “You must minimise your waste and try to negotiate as best value as possible from your suppliers. And we make to order, so we’re not left holding materials or stock.”
Chartered accountant Dunne says building good supplier relationships is crucial if you are to minimise costs. “If they let you down or become too expensive – explore your options, but focus on quality, value and service – it’s not just about price.”
Investing in machinery has also brought significant savings to Watkinson-Yull. “We used to hand-cut the leather, but we bought machinery that enables us to do the job much quicker. Consequently, we’ve probably saved about £10 per pair on our manufacturing costs, which is money we can use to grow the business.”
Maximising limited buying power
“Margins for restaurants are ridiculously tight, particularly as an independent business without massive buying power,” says Anna Barwick, owner of The Bunch of Grapes bar and restaurant in Bradford on Avon (a runner-up in the Observer Food Monthly Awards 2016 best Sunday lunch category).
“We don’t factor in any waste – everything that comes into our kitchen gets used. Purchasing daily is essential to this. Our head chef calls our suppliers after dinner service each night and leaves his orders on their answer phone for delivery the next morning.”
This means the menu changes daily and sometimes even during the day if a particular dish proves very popular, says Barwick. “Most customers understand that, for example, it’s because our moules are super fresh that they love them so much, but we can run out. This is a sign that a kitchen is efficient and that dishes are fresh and not mass-produced. Minimising waste also requires having well-trained staff who are equally committed to controlling costs,” she stresses.
Waste is something that small businesses need to continually evaluate – even after the business is up and running, and cashflow is healthy. “Minimising waste is an ongoing challenge,” Dunne says. “In my experience, when money is tight, businesses are usually more focused on waste and costs. It’s when they’re more successful that they can become more wasteful.”
Content on this page is paid for and produced to a brief agreed with Smart Energy GB, sponsor of the Managing Your Cashflow hub on the Guardian Small Business Network.
