Credit: Josep Ma. Rosell/Flickr

How to cut costs without damaging your company's performance

Trim fat, not muscle, to make your business leaner and meaner.

by Jack Torrance
Last Updated: 18 Dec 2015

It's no surprise that a lot of ambitious entrepreneurs prioritise sales. 'There’s a temptation when you have a business that’s growing very quickly to just focus on the top line, get the numbers in, and even if some of the business is inefficient we can sort that out later,' says Andrew Michael, a serial entrepreneur who sold his company Fasthosts for £61.5m in 2006.

But building a successful company is of course about more than just revenue. Even Amazon's Jeff Bezos, whose vast business is still struggling to turn a profit, is legendarily thrifty – he claims to have used a desk made out of a door in the early days. Penny-pinching doesn't have to have an adverse impact on performance, and can actually help you to grow faster.

'The more you grow, the more you realise, cash flow is the most important thing,' adds Guy Blaskey, founder of dog food brand Pooch & Mutt, which has a turnover of more than £1m. 'It controls how quickly you can grow, it controls what marketing you can do, it controls what products you can bring out, what staff you can bring in.'

Assess your spending

Before you start cutting budgets willy-nilly, you need to have a good look at what areas of your business are sapping the most cash – there's little sense in cutting back on stationery costs if they are equivalent to 0.1% of your energy bill. 'One needs to go through that forensic analysis of all your costs - there are some costs that you don't see,' says Brian Johnson, a partner at accountancy firm HW Fisher & Company.


Taking on a lot of staff in a short period of time can be a difficult thing to manage when you've also got your day-to-day operations to look after, but be careful you don't end up filling the coffers of recruitment consultants.

'[Small and medium-sized businesses] find it very difficult to compete with the big plcs to get the best staff, and as a result of that they end up having to pay large sums of money to recruit,' says David Costley-Wood, a consultant who works in KPMG's enterprise division.

A recent client of his almost ended up paying out £30,000 in recruitment fees alone, just to find one logistics expert. 'If you're using recruiters, make sure you only have to pay when they find the ideal candidate and they come to work for you, don't pay speculatively,' he adds.

In fact it might be worth cutting them out altogether. 'We've found that it’s much, much more cost effective to do it yourself, and much better because if you don’t have a recruiter you can get a much better idea of who’s good and who isn’t,' says Michael, who now runs professional marketplace


If your brand is interesting enough then you don't necessarily have to spend any money on traditional marketing. The posh crisps brand Tyrrells, for instance, grew to annual revenues in the tens of millions without ever paying for advertising (though it has since relented). Social media has made this even more achievable – more tips on how to make a go of that here.

If you do have to pay for ads, be sure to keep pushing for the best possible price. 'A lot of businesses in the UK are very polite, very English in their approach to things like that whereas we negotiated hard,' says Michael. 'The only way we actually knew it was the best price is when they stopped calling us back.'


Rent, rates and energy can make up a huge part of a business's costs. Don't be afraid of asking your landlord if they have any room for manoeuvre, especially if your contract is due for renewal. If you think your business rates are too high then it's possible to have your rateable value reassessed, says Johnson, although this can cost a bundle in itself. Regularly shop around for insurance, gas and electricity. 'Suppliers do have a habit of overcharging and I think what's key is actually getting lots of quotes,' says Costley-Wood.


Though you should avoid splashing the cash on overpriced consultants, there's no need to have all of your operations in house. Everything from accounts to manufacturing, sales and HR can be handled by other companies with greater economies of scale.

'We believe quite heavily in outsourcing as much as possible,' says Blaskey. 'We have a couple of hundred pallets of stock at any one time, but it would make no sense for us to store them in London. So we outsource our storage and our distribution, which keeps our costs down.' It also allows means he can afford to employ the services of better quality people. 'The best dog nutritionist in the world would cost us a fortune, and they would have nothing to do for 50 weeks of the year.'

Don't go mad

Keeping a handle on costs is important but there's no need to be a zealot; don't forget to look up from your spreadsheets every one in a while and remember saving money is a means not an end.

'You have to be careful to cut fat not muscle,' says Costley-Wood. 'If you cut muscle then you can cause long-term damage to the business and really stop your growth plans. You'll know if you've cut into muscle because systems start creaking, people are working all through the night and morale starts reducing because you're driving your people too hard.'

Keeping your sales ticking over is important and it's important you don't cut too deeply, but with a few small changes you can save a small fortune, and generate more cash to invest in growth.

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