Five ways to manage inflated operating costs
The pressure on startups and other high-growth businesses to manage costs is growing.
19 October 2022 • 3 minute read
Although new firms in sectors such as technology are unlikely to face the expenses involved in running an energy-intensive manufacturing plant, they must keep expenditure in check to survive and thrive in challenging economic conditions.
Here are five ways to protect your business's bottom line in the current environment.
1. Focus on costs from the start
The first rule of creating a startup, says technology entrepreneur Kevin Gaskell – currently chairman of ITS Technology and director of Radical Sportscars – is to keep your cost base low, regardless of the external trading environment. "That means no fancy offices, no fancy furniture, no fancy anything," he says. "It's about getting a team of people together who share a focused approach to building something extraordinary."
2. Take an innovative approach to staff incentives
In inflationary times, businesses can see costs rise sharply as workers demand higher salaries to cope with the increased cost of living. Startups which offer profit-sharing schemes can benefit in two ways, Kevin explains: "If you give current or new staff an opportunity to share in the equity of the business, they get a deferred benefit that not only reduces costs in the early stages but potentially provides a greater upside for your employees in the long term."
3. Beware of rising interest rates
The Bank of England has raised interest rates multiple times since late 2021 to bring inflation under control. This means borrowing costs for households and businesses are higher than they have been since the financial crisis.
"If you're going to borrow money, borrow it from friendly sources – friends and family," Kevin advises. "I've started two businesses by borrowing money in this way. In return, we've given them equity in the business and they've benefited substantially in the long term. The positive is we're not exposed to any fluctuations in interest rates as we would be if we'd loaded the company up with debt."
4. Cut exposure to energy prices
Soaring power bills are already threatening the livelihood of businesses across the UK, with the situation remaining challenging over the winter months. The current situation should be a warning to startups, Kevin explains. "The secret to managing energy and input costs is not to have specific facilities to operate from," he says. Companies should learn the lesson of the pandemic and use remote work as much as possible.
5. Stay lean and agile
Managing costs shouldn't just be a preoccupation during periods of high inflation, Kevin says. "One of my current businesses is a technology firm where we've grown the revenue by over 2,000% in the last five years. But along the way, we've looked at every aspect of the cost base. By working in a hybrid manner, and by not investing in significant assets, we've been able to make the business agile and respond very quickly to our market needs.
He adds: "We have used technology to replace what were previously heavy resource requirements – for example, any issues in our network are identified by the tech, not by technicians in the field.
"This constant focus on costs is a continuous part of growing a new, fresh and agile business."
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