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A guide to reducing operating costs
Issue 1: Property and Premises
Expense Reduction Analysts
money when it comes to property and premises. own a commercial unit on an outof-town business park or manage a multi-site estate across the country. the cost of your business premises will be a significant overhead. plant and facilities – are you getting value for money from your building services suppliers? 02 Introduction . running and maintaining property is one of the largest areas of expenditure for any business. not costing you. But the largest overheads can also offer the most potential for savings. examples and market intelligence from experts in the field to help ensure your business is generating. It includes tips and advice on the following areas: • Energy and utilities – are you maximising your chances of getting the best deal on energy prices? • Legal and finance – do you understand the terms under which you occupy your property and are you up to speed with the latest tax developments? • Building. As company directors come under increasing pressure to reduce costs. Whether you lease a state-of-the-art city centre HQ.Introduction Occupying. this guide aims to provide a range of practical advice.
1 Show me the money Whilst it is important to make sure suppliers are not building excessive margins into their offers when negotiating energy deals. With Office of Government Commerce calculations estimating the average cost for a company to process and pay an energy bill at £65. With energy prices now fluctuating on an hourly basis. In fact. is to take a proactive stance towards managing your portfolio of contracts. this represents a saving of between £1. Clients therefore need to time their renewals carefully and be ready to make a quick decision when the time is right.Energy and Utilities The dynamics of the utility markets present an ongoing challenge to businesses large and small. the most competitive rates are now seldom available just prior to contract renewal. says Neil Middleton. Expense Reduction Analysts can save between 3-5 per cent of your energy costs. However. given the volatility of the markets. constant monitoring of the market and careful timing of renewals is the key to making real savings. 2 Timing is key Traditionally. 3 Effective portfolio management One method of keeping better control of your energy costs.95 . By checking and validating energy bills to eliminate discrepancies as they are generated. or even be withdrawn. as the markets fluctuate. Energy and Utilities 03 .£3. it is now likely that your offer will increase in price. many clients are not aware that it is actually the wholesale cost of the energy component itself which now makes up 70 per cent of the end price. Particularly important for clients with multiple sites.25 per bill. It is therefore essential that companies take a focused approach to energy procurement. and there have been fundamental changes in the way energy is bought and sold in recent years. are simple initiatives such as ensuring that all contract renewal dates are aligned and implementing a consistent contract across the estate which can reap benefits not just in terms of cost but also internal admin/ accounting resources. the closer the deadline for acceptance comes. energy prices have been negotiated in the weeks running up to a contract renewal.
With shortening leases. However. Expense Reduction Analysts were able to identify a no-cost exit route based on the redevelopment potential of the site. As a tenant. 1 Box Clever Despite Government attempts to the contrary. Through negotiation with the landlord. rental values and overall demand falling. these can present a significant risk to landlords who suddenly find themselves saddled with the liability of servicing finance cost and no income for an uncertain period.” says Paul Giness. 3 Break out Break clauses allow parties the opportunity to exit a long-term lease ahead of time or to renegotiate better lease terms. 04 Property and ﬁnance A client in Kent was reluctant to move out of an inefficient. most commercial leases still provide for upwards-only rent reviews so tenants need to find creative solutions to their rental commitments.Property and ﬁnance “In testing economic times. which reduced the dilapidations to nil. This might include reviewing your present needs and finding ways to remove excess liability or create value. timing is key. partly used building because of potential dilapidations costs of £145. Tenants are in a strong position to negotiate an exchange of goodwill with a landlord.000. 2 It’s good to talk It’s not just tenants that will be looking to achieve greater certainty and control over their finances. both tenants and landlords have much to gain from a review of the terms of commercial leases and a creative approach to building occupation. landlords will also want to manage the risk of their tenants defaulting or vacating a property. particularly in the current climate. which can deliver benefits to both parties. . you can add value to a landlord’s lease by suggesting the removal of a break clause in return for a cash flow advantage such as a rent-free period or reduced rent. allowed closure of the office and secured wider business beneﬁts and cost savings for the client.
it is always recommended to take professional advice before taking any action of this sort. it may be possible to re-apply for further empty rates relief. This exercise is carried out by the Valuation Office – but don’t feel you have to accept it without question. or partially empty building. There’s every opportunity to appeal your rating assessment if you believe it is incorrect and. perhaps because it is in disrepair or is not yet complete. the rating assessment can be split into smaller unit sizes that will benefit from exemption if vacant.” 4 Avoid Empty Rates Tax relief for commercial property owners and occupiers with vacant units was significantly reduced in April 2008. following the subsequent vacation. if successful the saving could benefit your revised liability over the full 5 year period up to 2015. 5 Check your rating assessment The rateable value of your property is revalued every 5 years with the latest Revaluation effective from April 2010. However. Due to individual site circumstances. there are still ways to mitigate the additional cost of an empty. Expense Reduction Analysts can provide a budget forecast.“Expense Reduction Analysts estimates that the removal of a break clause or an extension of an existing lease is a signiﬁcant cash ﬂow beneﬁt to many businesses. Further scope to avoid empty rates charges is possible through charitable occupations or by declaring that the building cannot be occupied. Property and ﬁnance 05 . Furthermore. Consider a short-term let to another commercial tenant as this reduces outgoings and. Some regions are experiencing large increases of up to 100% and if companies are concerned about the impact on their revised bills.
single source supply chains are not necessarily the panacea they seem and clients need to ensure they have full visibility of the costs and value of each individual service provided. and.Building. . FM professionals are having to do more with less. Whilst there are immediate resource benefits in dealing with a single point of contact. a supplier consolidation programme or a Vendor Managed Inventory (VMI) solution whereby a supplier might set up shop at your premises and take on responsibility for maintaining an agreed inventory of materials on site. 06 Building. To ensure you get best value. It’s vital that organisations implement comprehensive and uniform systems for the measurement of supply chain effectiveness so that accurate data can be collated and meaningful decisions made about the renewal of contracts. value for money from suppliers is the order of the day. in the majority of cases. 3 Get more for your money Every building needs ongoing maintenance of one sort or another and there are savings to be made not only in the cost of materials themselves but also in the way they are procured. management of the effectiveness of a company’s FM function relies on anecdotal evidence rather than hard facts about supplier performance. suppliers are not being held to account on a regular basis for their performance and clients do not have adequate visibility of the value they are delivering. consider putting in place value-added procurement solutions such as a centralised purchasing function for all sites. plant and facilities management In Expense Reduction Analysts’ experience. plant and facilities management The scope of the FM function is ever-widening as regulatory demands increase and budgets come under pressure. 1 Knowledge is power Too often. as a consequence. only 30 per cent or less of supply chain contracts are reviewed/renewed annually. 2 Shop around Relationships with FM supply chain partners are becoming increasingly complex as a result of the trend towards ‘one-stop-shops’ whereby various services are grouped together in one contract under the umbrella of a single managing agent. says Ian Morrison. This means that.
often successfully retaining incumbents and using expert analysis and market intelligence to combat ‘contract fatigue’.We were able to make savings of £175. the consultants at Expense Reduction Analysts use their significant purchasing influence to achieve optimum value from suppliers.000 per annum for an agricultural client supplying fresh produce to Tesco and Sainsbury’s through the introduction of a VMI solution.co. ensuring spare machinery parts were always available and thereby reducing plant downtime. This involved establishing local stores for vital engineering consumables at each of their sites. Expense Reduction Analysts is the world’s largest cost management consultancy and focuses on reducing non-core operating costs for private. Handling an annual supplier spend of millions of pounds on behalf of clients in all sectors. not-for-profit and public sector organisations. as well as having global influence in over 35 countries specialising in more than 100 non-core business expenditure categories. Look out for future issues of these cost reduction guides covering: Issue 2 – Banking and Finance Issue 3 – Back Office Functions Issue 4 – Insurance For more information contact Expense Reduction Analysts on: 02380 892 737 or visit our website at: www. Expense Reduction Analysts has 170 consultants across the UK.uk The next step 07 .expense-reduction.
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