SMALL businesses are racing to slash their overheads as both customers and bank-lending facilities disappear. The good news is that cutting costs does not have to mean laying off staff. There are much less painful ways to do it, provided you know where to look.

Helen Rush has found a simple but effective way of reducing costs at her business Chinasearch, which buys and sells discontinued tableware. She has lowered the temperature by a couple of degrees in the warehouse where the china is stored and packed.

She said: “We have asked our staff if they could put on an extra layer of clothing and wear slightly warmer shoes. They have been very good about it.”

Keeping the thermostat down is not the only way Rush and her business partner, Jackie Wigley, have found to reduce overheads at their firm in Kenilworth, Warwickshire, which employs 27 people and has a turnover of £1.5m. The china is packed in old boxes and packaging donated free by local businesses, and everything is sent by second-class post. They even use free scrap paper from the local printer for all internal correspondence.

Rush said: “Our business is actually doing very well at the moment but we are very conscious of the fact that we are at the beginning of this nasty recession so we are trying to get ahead of the game a bit. It is a case of look after the pennies and the pounds will look after themselves.”

Over the next year the ability to cut costs is going to be the difference between survival and disaster for many small businesses in the face of declining demand and squeezed credit facilities.

According to the CBI’s latest SME trends survey, the volume of total new orders and output among manufacturing small businesses fell at their fastest rate since the early 1990s in the three months to January, and firms expect the next three months to be even tougher.

The good news for small businesses is that cutting out the unnecessary costs can have an enormous effect on the bottom line. Even axing seemingly trivial costs, when added up, can deliver a serious boost to your margins.

John Grange, a business adviser with Business Link, the govern-ment-backed advice organisation, said the best way of working out where the unnecessary costs were in your firm was to look at every process that takes place within it – and be ruthless.

“Imagine you are an order coming into your business and write down on a piece of paper everything you think goes on within your organisation to fulfil that order, right through to your product or service going out. Then actually follow an order through your organisation and compare what happens to it with what you think happens. You will be frightened by what you find.”

The secret, said Grange, was to eliminate everything that did not actually add value to your product or service. “Are you doing work you don’t need to do? Are you duplicating and repeating things? Imagine your business is a greenhouse and your customer is on the outside looking in at everything that goes on. What would they be prepared to pay for? It doesn’t matter whether you have a physical product or information or a service, there are always steps which are just wasteful.”

Another way of cutting costs, Grange said, was to outsource some of your activities – even something as seemingly innocuous as a colour photocopier.

He said: “You might have a very fancy colour photocopier but I am pretty sure that if you are using it once a week or once a month you would be better off going to Pronta-print. You don’t want the cost of it 24 hours a day seven days a week when you hardly use it.”

Back at Chinasearch, Rush and Wigley are even managing to make money from things that were once a burdensome cost, by using unwanted plates to make three-tier cake stands.

Rush said: “We have loads of extra plates that we don’t actually need and because we hate throwing anything away they would sit here taking up too much room, which was expensive. So we bought a secondhand drilling machine and we do it ourselves. They have been very successful.”

The firm also meticulously saves all its chipped and broken china and sells it to be used in mosaics.

Rush said: “It is possible to cut your costs painlessly. You have to get your staff engaged. Everyone here knows people who have either lost their job or who are in fear of losing it. I think that sharpens the mind greatly.”

Tony Walford, a partner at the Green Square business consult-ancy, said a good way to work out where to cut costs was to “clean-sheet” your overheads. He explained: “If you were starting the business today with a clean sheet of paper, what would you budget for? What would you want? Ignore what you paid for things, don’t look at your bank account, don’t look at anything, just write down what you would need to buy and how you would run the business. Then compare your clean-sheet version with what you are actually paying for. It is amazing the amount of needless rubbish you find you are paying for. You have basically been conditioned to think that you need these things because you pay for them every month. It may be magazine subscriptions or all sorts of stuff.”

You can also reduce your fixed costs: “If you are using a lot of free-lancers or contract staff, ask yourself whether they are all necessary, because it is easier to cut them out than it is your own staff base. If a permanent person leaves, look at whether you can spread his or her role across remaining staff, or replace the individual with a freelance.”

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