Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

Successful business leaders have all the information they need to make good decisions…Do You?

Sunday, March 05, 2017

Business Costs You Should Not Accept



I’ll tell you what drives me crazy.

A few weeks ago, one of our clients ordered a £7,000 delivery to their office.

When it arrived, the courier handed over the invoice: £7,050.

That’s right.

They’d added on an extra £50 for the delivery.

Worst of all, the client paid it without a second thought.

This is where I let out my primal scream…..! (I’ll leave it to your imagination.)

It’s a rip off, but their supplier snuck in the extra charge because they thought they could get away with it – and most people assume they have no choice but to accept.

In fact, this is just one type of cost every business has, but nobody accounts for. These can add up quickly, and before you know it, your overheads are out of control.

The good news is most are avoidable.

Here are just a few:

  • Creeping costs: These are little charges that get added to a bill you’ve already agreed to, just like the delivery charge above. Another example might be a supplier telling you once you were halfway through a project that an additional investment is necessary.
  • Stealth price increases: All those regular expenses you pay such as electricity, gas and travel? The companies love to hike up your tariffs when you’re not looking.
  • Additional costs you haven’t considered: This is your own oversight. For example, if you’re buying from outside Europe, you might forget you have to pay a duty. Similarly, if you are not organised enough to collect your goods promptly once they reach port, the port can charge you (“demurrage”).
  • Suppliers passing on costs to you: One of our directors, Shirley, used to work for a Pharma company. If, when they imported their raw materials, there was a delay, they sent the materials by air freight instead of shipping them – and passed on that cost to the client.
So how do you prevent these costs spiralling out of control?
 
First of all, make sure they are no longer hidden. All the examples above can only happen because no one in the business is controlling expenditure properly.
 
There needs to be an approval process for all expenses, and every invoice needs to go through it – no exceptions. If you raise a £7,000 purchase order and the invoice comes in for £7,050, it needs to go through the approvals process again.

As the business owner, ask to see all invoices from the last three months and audit them.

Do you know what money is being spent on? Do any of the sums surprise you? Who’s approving what? Are existing procedures being followed? Are there any additional costs (such as demurrage) you seem to be paying repeatedly, which can be prevented?

Then ensure that someone is held accountable for every penny you spend.
Second, unexpected costs need to be challenged. That £50 delivery charge? I would have refused to pay it. The supplier is unlikely to give up on a £7K sale over the delivery charge.
But that will only happen regularly when your company culture encourages people to pay close attention to payments.
 
Do you feel that your costs are out of control? We can help you create the processes you need to control your costs much more strictly – and cut your overheads right down.
 
If that’s something you want to chat about please get in touch. We’ll make sure that there’s not a single penny spent that isn’t accounted for!
 

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