Last reviewed 4 February 2016
Every business has a series of costs for the running of the business, and they must be met. However, as Val Moore, small business and early years consultant explains, if these costs can be reduced, then there will be more money to be spent on the things that matter — the provision itself and all those who work and play within it.
The first action must be to identify the major costs involved. These should easily be identified from the provision’s accounting system and accounts. If this information is not easily available then there should be a strong imperative to change the system as good financial information is necessary to the efficient running of any enterprise (business or the home). It’s the old adage: “if you don’t know what you don’t know, how can you know what it is you need to know?”
There are many simple things that can be done
Check that suppliers’ invoices are correct
Is the price on the invoice the one agreed? Have any discounts been applied correctly? Have items been added in that were not expected (eg, a delivery charge)? Has the VAT been correctly applied and calculated? Challenge any item that is not as expected.
Remove unnecessary costs
Some telephone lines, or mobiles, may not be needed. Heating may be left on when this is unnecessary or may be turned up too high, then windows are left open to compensate.
Reduce excessive costs
Use second class postage as a default, with first class only used where necessary. Better still, use email and texts. If there is a large volume of mail, would a franking machine be more cost effective? (Franked post is cheaper per letter than buying stamps, but there is a cost of renting the franking machine.)
Is it necessary to have the best quality in everything? DL envelopes are usually cheaper that A5 (just need to fold that piece of paper into thirds rather than half). Basic range DL envelopes are cheaper than branded ones. Apply this idea to all bought items.
Get rid of inefficient practices
Small orders usually waste time, can be more expensive (because of delivery charges) and may well not be eligible for higher volume discounts.
Are then any processes that are undertaken “because we have always done it that way” that could be dispensed with, or modified?
Use a noticeboard rather than expensive copying. Keep the notices relevant. New notices should always appear in the same place, or on a certain colour of paper. Train everyone to use it.
Look at the opportunities available
Could some activities be outsourced (eg book-keeping or payroll)? Could some be managed by volunteers?
Check on suppliers’ prices; compare with others. Switch to cheaper suppliers, or negotiate price reductions, or higher discounts for larger orders or early payment.
Could a number of provisions in the area come together and bulk buy, negotiating savings?
Having fewer suppliers means larger orders, means a better negotiating position for discounts. In larger organisations have one person responsible for placing orders: individuals ordering for their own department means smaller orders, which is inefficient (see above).
There can be large savings on electricity and gas supplies. Suppliers can offer tailored pricing packages based on requirements. When comparing prices do ensure it is “like-for-like”. Often there are additional discounts for purchasing electricity and gas from the same supplier and paying by direct debit and having online billing can reduce prices as well.
Staff may well be aware of where costs could be saved. Ask them what causes them problems or wastes their time.
Where staff have the authority to make purchases, give them a budget and make sure they stick to it. Initiate “spending up to £x, but not necessarily all”.
Parents may well have ideas where services and goods can be accessed at a good rate. Maybe even their employers could offer a good deal.
There may be a free or heavily subsidised business advisory service available to the provision (ask the local authority, the CAB or put “free business advice” into an online search engine) that could look at the business and advise in an unbiased way.
No business should run constantly on its overdraft: overdrafts are for just dipping into now and again as they are usually expensive. Perhaps a loan with a lower interest rate, which needs to be repaid over time would be more cost effective over the repayment period. Use this as part of an overall cost reduction and cost control exercise. In the longer term this will reduce the need for more expensive overdraft financing.
Is the provision taking up any grants it is entitled to? Find out if grants are available before embarking on large expenditure. Or could sponsorship be found?
Could money be raised through fundraising?
Sweat the assets
Could the premises, or part thereof, be rented out when not in use? Clubs often need a regular meeting place: out of hours training sessions on an ad hoc basis for other provisions are a possibility, or those running courses for other provisions in the area. Could the playground be used for others organising fundraising events? (Do check the leases and insurances).
Does the provision have items it could hire out, eg tables, chairs, fundraising items (such as duck racing boards).
Yes there are downsides
Being reliant on one supplier is a risk if that supplier fails. Have a second source.
Don’t cut costs so much that the quality of the service is compromised. Cutting costs on advertising may seem an easy option, but think of the longer term impact
Further help from Croner
There are a range of topics where we can help.
You may also find the article Negotiating with Suppliers useful.
And don’t ignore those smaller amounts. As Benjamin Franklin said:
“Beware of little expenses; a small leak will sink a great ship”