Back to basics for cost control as the usual levers lose value

Barely a week passes now without further depressing developments compounding the severe cost pressures already being experienced by businesses. 

In the UK, those developments include the near parity of sterling with the US dollar, further pushing up the cost of trading for many companies. 

Responding to the UK Chancellor’s ‘Mini Budget’ in mid-September, James Watt, founder and CEO of BrewDog in Scotland, said the latest measures, which had led to the pound’s slump in value, had made the current financial crisis ‘far, far worse’ than it might have been. BrewDog’s exposure to US costs mean that the company’s expenditure – already up a third in 2021, leading to bar closures – has now ‘dramatically increased’.

The company is far from alone. Every day, it seems, familiar high-street brands are closing their doors or reducing their hours of opening because they can’t afford the rising costs of energy, or to pay staff for more than core trading hours. 

Crunch time

As the more obvious levers for cost cutting cease to make the required dent, businesses are reaching crunch time.

In the US, in June after the inflation rate hit 8.6% (the country’s highest in 40 years), two-thirds of small businesses said it was ‘very likely’ or ‘likely’ that they would have to close permanently if the rate didn’t come down (it is still above 8%). 

Businesses most in danger of closing have typically already been impacted by declines in revenue and customers, pandemic-related shutdowns, and supply-chain issues, making inflated costs the final straw. The survey by Digital.com of 1,000 owners and co-owners of small businesses with 500 or fewer employees, found that nearly four in 10 small businesses facing closure planned to lay off employees to stay afloat.

Yet the more that companies cut back their staff, close locations, and reduce operating hours, the weaker their position in the market and the harder it will be for them to pursue new growth. Clearly, these are ‘last resort’ decisions. 

Meanwhile, the option to pass additional costs onto the customer is extremely limited, as the rising cost of living (not to mention the onset of colder weather in the Northern hemisphere) continues to take its toll on everyone’s spending power.

As one year closes…

As many businesses start to prepare their end-of-year accounts, it is time to take stock. The adage of looking after the pennies in every pound, or the cents in every dollar, has never resonated more.

It’s here that process automation gains new relevance, especially if this can be achieved quickly and affordably, without any disruption to the business as usual. 

Think about it. Finance is often one of the last areas of an organisation to be automated, despite enabling technology having been around for a good 30 years now. 

Still, today, individuals on the payroll are spending their time manually inputting data from an invoice into their accounts systems. This slow, laborious work is costing companies dearly, while also detracting from those same teams’ ability to scrutinise the data for scope for new efficiencies: for opportunities to curb, consolidate or reallocate spending; to save money.

Beware the ‘back to work’ distraction

Initiatives to lure staff back to the office, in the hope of increasing productivity, are not the answer to businesses’ woes. 

If anything, individuals’ new stress as they return to the commute, and have to worry about transport costs, what to wear, what to do for childcare and lunch, could be the trigger to make them leave altogether – wiping out all the benefits of all their training and experience. 

Now, I firmly believe it’s time to go back to basics. 

It’s the only real option companies have currently for taking back control, so it would be foolish not to!