Cutting costs without cutting corners - what businesses in the West Midlands should consider, to manage the increased costs of doing business

Written by Andy Bostock, Birmingham Office Senior Partner at KPMG UK

This is a tough time to be running a business. From supplies and products to raw materials and labour, costs are rising beyond what most local businesses may have prepared for.

Many businesses that we speak to in the region are saying one of their top challenges is getting a handle on their changing cost situation and achieving the right cost base to protect their profitability.

Our mid-year Private Enterprise Barometer, published recently, revealed that inflation remains a pressing concern for businesses in the West Midlands. Two-fifths (41%) of respondents agreed that inflation is a huge challenge, closely followed by interest rates, which more than a third (37%) of business leaders flagged as a key risk.  

So, if you’re at the helm of a business that’s struggling with increased cost pressures, what should you be doing? 

Stabilising the business without impacting its ability to grow in the future is essential, and reviewing supplier contracts can be a good starting point. Try to negotiate better terms, explore group purchasing schemes, and consider switching to more competitive providers.

Energy and utilities costs, for example, can be reduced by locking into fixed-rate contracts ahead of future market volatility, investing in efficiency measures, and taking advantage of available grants. In some cases, outsourcing non-core functions can also convert fixed costs into variable ones, freeing up resources, while a thorough audit of operations can help to identify and eliminate waste such as unused subscriptions or unnecessary travel.

Cash flow management is vital too. Speeding up receivables by tightening payment terms, offering incentives for early settlement, and enforcing robust credit control processes can make a big difference. At the same time, deferring non-critical capital expenditure can help to preserve liquidity.

When navigating short-term pressures, it may also be worth considering flexible finance options such as invoice financing, short-term credit lines, or asset-backed lending, as these can provide breathing space when its most needed. It may also be worth moving from quarterly to weekly cash flow forecasting so that any emerging problems are visible early, allowing more time to respond.

Investing in productivity and skills is another powerful way to offset rising costs. By automating repetitive tasks using accounting software, customer relationship management systems, or chatbots, this can help to free up staff time for higher-value work, while upskilling teams in digital tools and data analysis can also help to improve efficiency.

Finally, it’s crucial to lead with transparency. Having open communication with staff helps to build trust and reduces the risk of losing key people during more challenging times. Make the effort to celebrate business wins, as this can boost morale.

Facing increased cost pressures isn’t simply about cutting back, it’s about optimising processes, safeguarding cash flow, and innovating to maintain your competitive edge. Businesses that combine prudent short-term cost management with strategic long-term investments are often the ones that not only survive challenging times, but emerge stronger and more adaptable than before.