It is still early in 2024 but the early data implies a weak December and an even slower January. The UK is widely reported to be at risk of a technical recession. There is some room for optimism, however, with many expecting an easing of interest rates this year. However, for any business whose financial year ends in H1, some tough decisions may be needed. Crucially, it isn’t all about cutting, though many will be forced to look. There is also a need to ensure that you do receive value for money for what you invest in right now. Not all leaders are prepared to look at every area, believing some things to be ‘off limits’. The maverick and far-sighted few will invest now for when times improve, hoping to capitalise later. So, today we focus on value for money in your business when nothing is off limits.
Value for money
There are a few definitions of value for money. One definition could be the amount of value received versus the price paid. Another could be the efficiency and effectiveness of an amount of money spent. We prefer to think of value for money as the best combination of price, features and quality when applied to products. When applied to services, we consider value for money as the best combination of price, capabilities and customer experience. In each case, price is one of the dimensions, though its relative weighting may change depending on the purchase context. That context can be influenced by many things including need, urgency and budget.
It goes without saying that most people and most businesses like to ‘feel’ that they are receiving value for money. For the observant amongst you, notice that we have not defined value for money in absolute terms. In truth, it is partly subjective, unless what you are buying is easily measurable, comparable and homogenous. This is more the case with products than services, which are largely intangible. So, just how do you ensure value for money? Is it all about going for the lowest price? Can suppliers continue to find efficiencies year in, year out? Have you considered all of the alternatives?
What costs are generally considered off limits?
The following areas of expenditure are generally considered off limits in the short-term (this list is not exhaustive):
- Labour costs
- Utilities and facilities
- Insurance
- Vehicles
- Large, contracted suppliers
For various reasons, people costs, within which we include contractors, are considered off limits. In fact, simply moving people between roles can send the shivers up some managers. Leaving employment law aside, effects on morale and engagement and continuity concerns come to the fore. Utilities are often tied into contracts. Large suppliers of services, outsourcing or supplies often have multi-year contracts or sit on panels for 3-5 years. Vehicle costs are often overlooked, especially when the organisation depends on them to deliver products or provide services. Finally, insurance is often viewed as fixed, covering a fixed range of risks across a portfolio of assets and people.
What if such costs were not off limits?
Now, we are going to assume that the obvious candidates have been reviewed. This might include travel, training, marketing, consultancy, events, hospitality and other discretionary spend. Similarly, many organisations cut off small suppliers, establish new controls for purchase order approval or even zero-based budgeting. We cannot condone such measures without fully understanding the pros and cons for each organisation. In theory then, the easy candidates are already dealt with. Draconian measures such as a Company Voluntary Arrangement (CVA), site closures (and associated consultations) and a sale are not covered here. So, let’s look at the categories that may not truly or fully be off limits.
Labour costs
Redundancies take time and may involve some form of voluntary arrangement. This doesn’t help your financial position in the short-term. Other ‘knee-jerk’ actions may result in tribunals. So, what about contractors? In general, contractors are hired for between 3 and 12 months. They can be rolled off simply by not renewing the contract. You can also trigger the notice period of some of your staff, particularly low performers, which is advantageous if 3 months or less. Additionally, you can put a pause on recruitment, even holding fire on backfilling those leaving in the coming months. This saves both on salaries and recruitment fees. Furthermore, you can review your temping agencies, allowing flexible resources to depart. Finally, you can address the more ‘variable’ elements of remuneration, such as overtime, bonuses, commissions and other non-financial benefits (e.g. free gym membership).
Utilities and facilities
Sure, most of these are contracts for 1-5 years for many businesses. Your electricity, gas, water, telephony and internet are likely in-contract. Your facilities such as waste collection, hygiene products, cleaning and recycling will be too. However, they are always worth a check. Make sure that you know when each of the contracts is coming to an end and start shopping around now. Similarly, there may be savings from combining some of these services with a single supplier. Additionally, it may save money to commit to several years rather than 1 year, so weigh up your options carefully.
Insurance
As above, many renew and forget about their insurance cover. Furthermore, some will simply renew with the same supplier every year and there may be deals out there. Also, it may be that your insurance cover is more comprehensive than you need with benefits that you do not use. Alas, we would be remiss if we did not highlight that you could find the opposite. Yes, your insurance cover may be insufficient for your current assets, the number of employees or the cover you need now. Ultimately, you only know if you review your insurance portfolio and when each deal expires. You may also benefit from consolidating suppliers or increasing your excess in some circumstances.
Vehicles
Just to be clear, we are not strictly talking about fleet vehicles for managers (a perk of the remuneration package). These are already taxed as a benefit-in-kind depending on their emissions and fuel (if not an EV) is typically purchased by the employee. No, we mean delivery vehicles or company vehicles used on business. These vehicles either move products and materials, transport your staff to customers or operate across your sites. You may initially think that there are few cost savings available. However, there are still savings to be had in terms of fuel and consumables. We all know that harsh acceleration uses more fuel. We also know that you use more fuel at 70mph than 60mph. A poorly maintained and enthusiastically-driven vehicle may need more parts and consumables (such as tyres). Don’t ignore the state of your fleet and how they are driven and maintained.
Large, contracted suppliers
Procurement is already thinking about tendering anything coming up for renewal. They will ready a wish-list of ‘asks’ and creative ways to reduce costs or increase rebates. Some invitations to tender (ITT) are incredibly complex, taking months to complete. Additionally, past victors may sit on panels of 3-4 similar suppliers and go through ‘mini tenders’ to bid for pieces of work. Others deliver critical services and any migration needs careful management of risks and detailed planning for transition. However, there may be gaps. If there is no minimum volume commitment or a guarantee to receive work from a contract award, alternatives are possible. Similarly, if the ‘core’ of a contract award is cheaper, ancillary or additional work may be pricier. Sometimes, keeping a few smaller and/or specialised suppliers can be handy. Finally, contracted-out work that you can do in-house keeps more cash in your bank account.
Assurance over your cost-base
Here at Think Beyond, we offer a range of services under 4 pillars: Research, Plan, Change and Enable. Under our planning services, we offer assurance to ensure that your plans are being delivered. This includes reviews of capabilities, such as people and roles, processes, systems and partners. We also conduct cost reviews and offer feedback on potential opportunities for transformation. Sometimes, your finance team will be all over costs. Other times, you might hope that finance works hand-in-glove with procurement. If not, or you need a second opinion, we can help.
So, if you need to achieve greater value for money in your business, why not drop us a line today?
Alternatively, send us a short email or fill-in our online form to book your free initial consultation.
Finally, it will only take 4 minutes to read more about reducing your overhead costs.