Research reveals businesses in the region could do more to reduce their business expenditure
IT ISN’T just MPs who should have an eagle eye on their expenses. The same goes for businesses in the east of England.
Businesses in the region are missing a major opportunity to reduce their business expenditure and retain profit during the current recession, according to new research conducted by YouGov.
The study, Is your Business COSTING you? was commissioned by the Expense Reduction Analysts’ Centre for Cost Reduction, and gained insights on business expenditure management from board directors and senior managers across the country, including the east of England.
It revealed that a significant proportion of companies in the region are failing to increase their bottom lines through neglecting their cost base, so much so that more than a half (54%) of the 90 respondents felt they could achieve cost savings of 6% or more.
Nearly a quarter (24%) said that their organisations had not put in place any cost reduction programmes during the last six months since the start of the recession for main business expense items such as those covering property and premises, office and industrial supplies, car fleets, logistics, and managed services such as cleaning, catering, waste disposal and security. Indeed only 37% were either satisfied or very satisfied with their organisations’ drives to reduce such business expenditure.
Moreover, 52% of respondents had not conducted any contract renegotiations with suppliers since September 2008 when the steep decline in the economy started. Where renegotiations have taken place, the study suggests that this does not seem to have gone far enough. Only 16% had gained an extension in credit terms; and just 7% had managed to change payment terms from advance to arrears. In addition just 37% had negotiated a reduction in prices and less than a fifth (18%) had agreed changes to service level agreements to be more appropriate to their requirements.
The survey also revealed that of those respondents, who had stated that their organisations had introduced a cost reduction programme for main areas of business expenditure, the majority (83%) stated this was in the form of a review. Only 18% said that this review had been done well. However the east of England was one of the best regions in the country for benchmarking suppliers costs (43%); measuring cost reduction achievements (40%); and creating a cost reduction culture (54%) in the last 12 months.
The biggest barriers to reducing costs, as experienced by respondents, were lack of time (29%) and resources (16%). Negotiating (20%) and cost management (38%) were highlighted by respondents as the key skills gaps to support the reduction of costs in the future.
The study also showed that a significant number of companies in the east of England are taking risks in the current economic downturn by not carrying out basic due diligence on their suppliers. Alarmingly, 29% said they had not carried out any checks on the financial standing of their suppliers and 24% indicated that they had only conducted checks every year or longer than a year.
Nearly a half of those interviewed (46%) did not feel their checks on suppliers were adequate enough. Respondents also showed they were not very aware of the contract terms, for example 34% did not know the notice period of their suppliers’ contracts.
Robert Allison, managing director of Expense Reduction Analysts, said, “It is clear that a major opportunity to retain profit during these harsh times is going begging.
“The prime focus for companies in the east of England is on the top line – with 56% of respondents stating increasing sales as the priority for increasing profitability. However, the study highlights that there is also a major opportunity to increase the bottom line by reviewing and taking action on day-to-day business expenditure, which in many cases has gone unchecked for a long time.
“The survey also reveals that there is an opportunity to renegotiate contractual terms harder with suppliers during these tough times, however this should not be at the expense of the quality of service you receive as this could impact on your service to customers.”
He added: “It should be noted that any reductions in business expenditure goes straight to the bottom line. Therefore on a typical industry profit margin of around 8%, a company would need to generate sales of a quarter of a million pounds to make the same bottom line impact as cost savings of just £20,000.”
Colin Mills, CEO and founder of The FD Centre, a provider of part-time financial directors, said, “It is clear to see that there is a significant untapped opportunity for companies in the east of England to reduce costs.
“Companies in the region have been feeling the pressure of the recession for some time now and they really now need to step up to the mark in terms of developing effective cost management strategies, particularly in renegotiating contractual terms. By doing so not only will they steer through the current economic crisis, but they will ensure they will be stronger when recovery returns.”
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