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How to cut your running costs

publication date: Oct 6, 2008
author/source: Jonathan Harvie
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I am sure that many of you will have taken a good look at your costs by now. I thought it might help to show you the sort of areas that I would be looking at. 

Personal expenditure 
The business should only pay for business related expenditure. Some of you may have been tempted to pay for personal expenditure through the business. If the spend has not been treated correctly for tax purposes you could end up with an extra tax bill. This is the last thing you want. 

In this market you really don’t want to put additional pressure on the business. You should be making the personal economies to leave more in the business. Personal expenditure also sends the wrong signal to staff. You need to hurt if they’re hurting and you need to be seen to do so! 

The business model 
You first need to look at your business model. Is your business model still right in this market? If it is not appropriate then you must make the changes. The changes will dictate in broad terms the area of cost savings (or increased expenditure). 

Business related costs 
You need to go through these on a line by line basis. Fat will have accumulated in the good years. You almost need to pretend that you are starting a new business. Do you remember how lean and mean you were in those days. When looking at costs the mindset you need to maintain is that “£1 spent by the business is £1 less for me”. It really does focus the mind! 

Remember there are no sacred cows. 

Staff costs 
Generally, staff are the most significant overhead cost. You need to sort out the drivers from the passengers. Sadly there is no room for passengers. You should reassure key staff as to their future as far as you can. No one can perform to their best if they work in fear. If you can make staff costs more variable than fixed in nature that must help.

Again this for most agents is a significant cost. I grant that some advertising spend is necessary but a lot is spent by rote without a great deal of thought. There may be scope for agents to cut their spend provided they make the advertising different and bold. All I see is page after page of barely differentiated press advertising. There must scope for local “coordinated bargaining” with local newspapers. 

It stands to reason that the cost of having 200 properties on your books is greater than having 100. It may make you feel better but it will cost you more. If you only had 100 properties that you had carefully “scored” before you took them on your conversion rate would be far better. 

The sellers should be motivated, the property priced to sell and the fee respectable. If it ‘aint don’t take it on. A number of agents now run a similar system. With less stock staff could be more focused. You may even have less staff. Your advertising and related costs would be lower. Remember “stock is vanity, profits sanity”! 

The biggest word in the English language is “no”. It will take real courage to devise a scoring system and stick to it. If you do it properly your “stock turn” will improve and by being able to shrink related overheads you will make more money. 

Interest costs 
These can be reduced by paying suppliers a little later (Ed: but don’t be too mean, you need suppliers too!) and ensuring your debtors pay on the nail. Working capital management is something I will return to in the future. 

Supplier discounts 
You should be behaving now being firm with all suppliers. In this febrile business environment if they won’t give you a discount someone else may well do instead. 

I know some agents have taken on the cost of a HIP. They attempt to recover it in their commission. Get it wrong and this will be a real cost to the business. This area needs a great deal of thought. 

Taxation costs 
Tax is a genuine cost to your business. You must make sure that your business is structured in such a way to reduce the taxation cost to the business and yourself once you have extracted the money you need to live on. 

Jonathan Harvie is a CharteredAccountant, an Associate Member of the NAEA, a Partner with Hazlewoods LLP, he heads a team of tax and business advisers, specialising in advice to Estate Agents. This article has been prepared as a guide to topics of current financial and business interest. We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of this material can be accepted by us. 
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