The Reserve Bank’s decision to reduce the prime interest rate to 2.75% (the lowest for 50 years) confirms the difficult environment in which businesses are operating.
To survive in difficult times, businesses need to continually review their business operating environment. This would include a review of your marketing strategy, managing costs, innovation, productivity, preparation of cashflow and profit and loss budgets for 2013/14.
Based on a survey conducted by CCH, the main reason why businesses fail, according to SME operators, is the failure to manage and anticipate rising costs within their business and the failure to plan ahead with the preparation of next year’s budgets.
Other areas of concern identified by SME operators in the survey included:
- Inexperienced management
- Poorly designed business model (e.g. no business plan)
- Insufficient capital or inadequate access to capital (borrowings)
- Poor marketing
- Too much expansion, too quickly
- Not enough time on managing the books of the business
- Failure to seek professional advice
While sales growth is important, management should also be as diligent in cost control.
Many businesses have found that by embarking on cost control reviews, they have achieved the same profitability improvement that would otherwise have had to come from a substantial increase in sales.
Some options to reduce costs include:
- Negotiate payment discount from suppliers
- Consider the appointment of cost consultants to review your utility costs such as water, electricity, gas, telephone, internet connection and other similar costs
- Check to ensure that credit cards/accounts are being paid on time so you are not incurring late charges
- Check suppliers’ invoices to ensure that there have been no other charges, and that all goods and services are received
- Ask, “Why are we incurring this expense?”. Sometimes a service signed up for a few years ago, might not be necessary today
- Ask “Is the product or service being properly used to generate bottom line profitability?”
- Consider if the cost of telephone usage could be reduced by availing yourself of services such as Skype
- Review labour rosters and working arrangements (full time/part time). Do you require all of the staff that you currently employ?
- Look for waste in your business.
On the counter-side you should also ask yourself ‘what investments in additional cost could assist the business to grow revenue/profits’.
If you wish to discuss your business’ current performance and the preparation of budgets or waste audits for 2013/14, please get in touch with our office on 08 6212 7200.