New research reveals businesses could do much more to reduce their cost base

It isn’t just MPs and Cabinet Ministers that should have an eagle eye on their expenses. The same goes for businesses throughout the UK, according to new study conducted by research organisation YouGov.

More than a third (34%) of the 1,320 board directors and senior managers interviewed said that their organisations had not put in place any cost reduction programmes for business expenditure during the last six months and nearly half of respondents (46%) had not conducted any contract renegotiations with suppliers since September 2008 when the steep decline in the economy started. And more than half of all respondents (56%) felt they could achieve cost savings of 6% or more for their businesses.

The study – Is your Business COSTING you? was commissioned by the Expense Reduction Analysts’ Centre for Cost Reduction to gain insights on business expenditure management from board directors and senior managers across the country and a range of industries.

Other findings included:

1. where contract renegotiations have taken place, only 16% had gained an extension in credit terms; and just 8% had managed to change payment terms from advance to arrears. In addition just 36% had negotiated a reduction in prices and only 18% had agreed changes to service level agreements to be more appropriate to their requirements.
2. just 33% of those interviewed said their organisations had measured cost reduction achievements and only the same percentage had benchmarked suppliers costs in the marketplace over the last 12 months
3. less than 1 in 10 of respondents  were very satisfied with their organisations’ drives to reduce such business expenditure.
4. the biggest barrier to reducing costs, as experienced by respondents, was lack of time (39%).
5. 39% of respondents said they had not carried out any checks on the financial standing of their suppliers and 18% indicated that they had only conducted checks every year or longer than a year.
6. 51% of those interviewed did not feel their checks on suppliers were adequate enough.

Says Robert Allison, Managing Director of Expense Reduction Analysts, the UK’s largest cost and purchase management consultancy: “It is clear that a major opportunity to retain profit during these harsh times is going begging.

“The prime focus for companies is the top line – with 57% 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 business 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, comments: “It is clear to see that there is a significant untapped opportunity for businesses of all sizes to reduce costs, particularly important during the current harsh economic climate.

“Companies 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, whether it be wider and tighter benchmarking of suppliers, measuring cost reduction achievements or renegotiating contractual terms. By doing so not only will they steer their organisations through the current economic crisis, but they will ensure their companies will be stronger when recovery returns.”

Ends

• The Is your Business COSTING you? was conducted by YouGov on behalf of Expense Reduction Analysts’ Centre for Cost Reduction, the research arm of Expense Reduction Analysts, the world’s largest cost and purchase management consultancy.
• The research, which was carried out amongst 1,320 board members, directors and management within UK companies, sought to explore the extent to which: UK plc is keeping tabs on business expenditure; and the potential savings that could be made in business expenses and put on the bottom line during the current economic downturn.
• The study focussed on a range of business expenditure items, which represent a significant proportion of a company’s overall costs. These included: banking and finance; property and premises; car fleets; logistics; office and industrial supplies; and managed services, covering waste disposal, contract cleaning, catering, facilities management, and security.
• A full report of the findings of the Is Your Business Costing You? Survey is available from Expense Reduction Analysts’ Centre for Cost Reduction. To order a copy please contact the Centre on 02380 829737 or visit www.erauk.net.