9 golden rules of cutting costs

With the prices of food, fuel, energy and everything else increasing at a record pace to reach new highs, most of us will be watching our spending much more closely in the coming months, while looking for ways to cut costs.

Minimising costs will be vital if many self-employed sole traders are to survive and keep their cash flow healthy. Rising prices are also affecting private landlords, of course, who will also be looking to cut costs to protect their rental income margins.

Whether you’re a sole trader or private landlord, usually, it is possible to cut costs. You might just save a few pounds or make far bigger savings, but in these challenging times every penny counts and limiting your costs is essential. So, what are the golden rules of cutting costs?

1 Understand your existing costs

Look closely at your current spending in all areas. What do you buy? How much do you pay? What value do you get? Where has your spending increased in the past year or two? Where are you wasting money? These are key questions that will help you to focus your cost-cutting efforts.

Top tip! If you’re a sole trader, produce a 12-month cash flow forecast, which details your expected income and costs. It will give you an idea if you risk running out of cash, so you can act now to avoid serious trouble. 

2 Identify and eliminate all waste

Sole trader businesses can become wasteful over time, usually without realising it and often because the focus is on customers, business growth or other things. Private landlords also have a multitude of things to do and think about, which is why they sometimes waste money unintentionally.

Many sole traders buy stock or materials they really don’t need, or spend on advertising or invest in marketing that doesn’t work. Businesses can pay for space they don’t use or waste lots of money on unnecessary travel or energy use, or professional services they never use.

3 Exercise some caution

Be warned: cutting costs by too much or in the wrong place(s) can have serious consequences. Product or service quality can suffer if you’re a sole trader, which could damage sales. You may not be able to run your business as effectively if you get it wrong. Some sole traders immediately slash their marketing budgets when cost-cutting, only later to find out their sales have dropped significantly. Similarly, overzealous cost-cutting can also create problems between tenants and landlords, for example, if you suddenly reduce maintenance to save money.

Top tip! Carefully consider the likely consequences before reducing costs in any area.  

4 Rule nothing out

Aim to cut costs in all areas. Making savings in some instances will be easier than others, so, go for the quick wins first: stock, materials, marketing, freelancer/sub-contractor or professional fees, etc. Find ways to use less energy. Only travel when absolutely necessary; favour phone or video meetings; work from home if possible. Savings in other areas could be more difficult, but don’t be put off. Try to save on bank charges, insurance, mobile phone charges and broadband deals.

Top tip! If you’re a sole trader, you may be able to sublet premises space to another business to reduce your costs.  

5 Seek better deals from existing suppliers

Because we’re busy and don’t want the hassle of finding new suppliers, we stick with the same ones. And most avoid simply asking suppliers how we could get better value. Such conversations need not be awkward. Your suppliers may be able to recommend good cost-saving solutions. Good supplier relationships are worth protecting, but you shouldn’t rule out other options, because you may get better value elsewhere. Value is more important than price. You might get a better price elsewhere but poor service.

Top tip! Be firm but fair when negotiating with suppliers, because both parties must be happy if the relationship is to last.

6 Get input from others

Start with your customers/tenants. You might be paying for things they don’t want, for example, salad with their food that they never eat. Maybe you’re sending them expensive leaflets that they never read. If you employ others, ask for their cost-cutting recommendations. They might suggest ways you’d never think of. Reward them for good ideas and always remain open to them.

7 Discourage “profit-eating” customers

Some customers will gladly waste your time – and they may not always end up buying from you. If they do, they can try to screw you right down on price, have unrealistic expectations, complain a lot and always pay you late. No one likes to turn away business, but some customers are more trouble than they’re worth. Concentrate on selling to customers that aren’t as problematic.

Top tip! If you can’t discourage customers who steal your time and energy – make sure you charge them for it!

8 Fully embrace apps/software

Making good use of apps/software could deliver big cost-savings in many areas of your sole trader business. Software could make your systems and processes much more efficient, saving you time, money and hassle. This applies to many challenges and tasks, from managing your customers or stock control, to completing and filing your Self Assessment tax return, which can apply to landlords, too.   

9 Be prepared to make tough decisions

Cost-cutting often involves having to make difficult choices, including spending less with valued suppliers or even going elsewhere. If you pay freelancers or subcontractors, you may need to give them less work and do more yourself. Cutting costs when you’re a sole trader often involves having to make personal sacrifices..

Top tip! You can’t afford to dither or delay when it comes to eliminating waste and cutting costs. Work out what you need to do – and get it done.  

Guided by your likely income for the next 12 months, work out how much you can afford to spend in all areas. Set realistic monthly budgets and do everything you can to stick to them. To ensure that you continue to successfully control your costs, carry out regular cost reviews. Failing to manage your costs just isn’t an option.

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.