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Richard Keighley, director at e-FM Network, outlines some of the challenges facing the region’s businesses as costs continue to rise in the harsh economic climate. With recent announcements that the UK has returned to recession, SMEs will be even more susceptible to business collapse as they may lack the negotiating power that the larger corporations have when reviewing contracts and supplier terms, and will need to take a serious approach to cost management to stay afloat.

After three years of unabated cost cutting, struggling companies need to continue to maintain the profits within their business whilst ensuring that suppliers maintain their own position of generating profits and stay in business.

The importance of cost management is to focus on obtaining value from suppliers rather than just targeting lowest cost. Reducing expenses is not merely about going to a cheaper supplier, it is about strategy. Businesses need to cultivate closer worker relationships in which they can identify value creation strategies which generate savings without affecting or disrupting standards of service through changing suppliers. By engaging with suppliers and understanding their needs, as well as fully assessing and communicating requirements and objectives, businesses can obtain cost savings and develop good working relationships.

An area of focus must be on the question ‘is the proposed expenditure a need-to-have item or a nice-to-have item’. This really comes into its own when considering the management of non-core business expenditure. How many costs do businesses have that go unnoticed and unchecked for years, and are still in the business because they have always been incurred? By focusing on, monitoring and examining such costs, businesses can make major savings which go to straight to the bottom line.

To drive such cost savings companies need to create a cost conscious culture driven from Board level down with the Financial Director primarily responsible for creating this environment. That said, whilst some Financial Directors are able to provide strategic guidance, they sometimes fail to be in touch with the operational impact of some types of cost reduction. What is imperative is for all the business to be closely involved in implementing savings and managing change. Remember, it is about being smarter, not cheaper!

Richard Keighley FCMA is Finance Director at e-FM Network, providers of pay-as-you use financial management solutions.
He can be contacted on richard.keighley@efm-network.com . You can also visit www.efm-network.com

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