Five things SMEs are wasting money on (according to business leaders)
Each year, there are nearly 400,000 new businesses set up in the UK. Here are five things they may be wasting money on (according to business leaders).
Taking a company from an eager start-up to a rocksteady brand is far from straightforward. There are plenty of ups and downs which need to be successfully navigated if you want to see your business still standing five or ten years down the line.
And the biggest hurdle? Money.
“We’re all about saving SMEs money on their energy and utility bills,” says Phil Foster, CEO at Love Energy Savings, “but we know that there are plenty of others things that SMEs could cut down on to strengthen their prospects in the long run. Increasing an understanding of the common pitfalls entrepreneurs fall into when it comes to money is key to ensuring that business in the UK continues to thrive.”
Love Energy Savings spoke to business leaders that have been through the gauntlet of running a small company themselves to learn what SMEs are wasting their money on — and what they can do to change that.
1) Buying office space before it’s needed
Ambition is great for any business. Having a clear vision of where you want to move to and how you want to grow often gives you the tenacity to push through the trials and achieve that aim.
Too much ambition, though, can become a problem. For SMEs, that comes in the form of premature scaling: buying space in anticipation of growth that isn’t guaranteed.
“SMEs can lose out on profitability if they commit to office premises too soon,” says Kieran Hart, Managing Director of Virtual HQ:
“It’s not just renting that’s costly, but all the other components that follow; such as transport, telecoms and utilities. Traditional office space can range between £300 to £2000+ PCM alone (depending on size and intended use).”
Consider whether you need as much office space as you have — or whether, if you’re a startup, you need office space at all just yet.
2) Making bad hires
A bad hire is one of the most costly mistakes you can make, especially in the early days of your company.
Darren Hockley, Managing Director of eLearning company DeltaNet, highlights the mistakes that small businesses can make when it comes to hiring:
“The pressure on time can often lead to rushing the recruitment process and taking the ‘best of an ill-fitting bunch’,” he says. “Often it is better to wait to get the right person. Rushing to recruit the wrong person might mean they take longer to come up to speed or they leave quite quickly, so you have to start the whole process again.”
That’s not to say SMEs are stuck until they find the perfect hire. Here’s how you can improve your hiring process without breaking the bank:
- If there’s expert work to be done in the short term — like setting up a website — outsource it to the pros. By the time recruitment costs and benefits add up, it’ll be far cheaper to go to a third party instead.
- Hire part-time staff for a role that isn’t big enough to justify taking someone on full-time for.
- When hiring full-time staff, strike a balance between excellence and efficiency. A small business might benefit from taking on a graduate that’s talented and keen for experience, but who’s not as costly as a veteran.
- Incentivise referrals from staff with a finder’s fee. Not only is it cheaper, but your team will put forward people they know are good from experience because it reflects well on them. Use recruiters as a last resort.
Branding agencies can sell you the dream, especially if you’re new to running a company. But many business owners have found that focusing on branding too early on can be a significant waste of vital resources.
Kalina Halatcheva, founder of Nouri Health, has learned this first-hand:
“For me as a new brand trying to get established, the opportunity to be attached to glamorous events and my dream target audience have cost me a lot of money. Looking back now, it looks like such a waste!
Brand image and long-term goals are important, but don’t let yourself be blinded by big names and promises for long-term success. For SMEs, the bottom line at the end of the month (not the year!) is what you should be looking at and tightly controlling.
Instead of branding, focus on making the quality of your work — whether that’s a service or a product — as good as possible first. Recommendations from happy customers are far more likely to grow your business than a flashy logo or a cute mascot.
4) Advertising (the wrong way)
Advertising and digital marketing are both important if you want to create a brand that people flock to, but it can be a mistake for businesses to jump in too early. Not only can advertising be really expensive, but it’s also unlikely to drive tangible returns if you do it wrong.
Charlotte Sheridan from marketing agency The Small Biz Expert warns against using things like Google Ads if you don’t have the experience:
“Many business owners adopt a ‘set up and leave it’ approach, which can cost them dearly if they are not monitoring the search terms and aren’t checking ROI on ad groups and keywords. We have seen examples of companies spending hundreds of pounds per month on a single keyword that has been picked up as a broad match and doesn’t relate to their services.”
However, advertising can be powerful in the right hands. Here are a few ways you can utilise it properly:
- Ensure your product is as good as it can be. Nothing will kill your brand name faster than a bad reputation: word of mouth and bad press spread like wildfire.
- Find the channels that will be most effective for your target audience. If you sell accounting software, Instagram probably isn’t the best place to start promoting it. In the same way, you wouldn’t take out a two-page spread in the Financial Times if you sell super fashionable oversized hoodies.
- Hire an expert — Whereas pay-per-click (PPC) advertising will provide you with a much clearer ROI than, say, print advertising, it can be hugely costly if you don’t have someone who can effectively manage your ads account. Have an expert run your campaigns for you. You’ll lose far more on a runaway ad campaign than you will by paying for someone to manage your ads the right way.
5) Paying too much for business energy
8 out of 10 businesses are currently paying too much for their energy, despite the fact that they could easily switch to a cheaper tariff.
Phil Foster, CEO of Love Energy Savings, said: “While it’s inevitable that bills will continue to rise, you can remain in control of your bills by finding a comprehensive deal that fits your budget. Failing to review your bills and find a tariff that offers you the best value for money can have a significant impact on your company’s bottom line.”
Businesses can save over £1,000 a year by quickly switching their energy tariff online. Other simple ways to avoid unnecessary spending include:
- Using energy-efficient appliances— A small business will use about 20,000 kWh of energy each year. When you consider that using incandescent bulbs could cost up to £11.70 more per kWh than fluorescent bulbs, it quickly adds up. It’s also important to ensure any equipment and appliances you use, whether that’s computers in the office or white goods in the kitchen are as efficient as possible, so switching to energy-efficient appliances can save you a lot of money, especially in the long term.
- Switching things off— Turning things off when they’re not in use is one of the simplest but most effective ways of cutting costs. For example, by switching computer monitors off when leaving the office, you can save up to £56 a year per computer.
Stop wasting, start saving
The spending habits of a company often come to define whether it’s one that sinks or swims.
Those that take on the advice of business leaders that have experienced bad spending first-hand, set themselves up to succeed by getting in control of their finances and supporting their future.
Photo by Crew