Wake Up Call For Irish Businesses And Consumers In association with AIB

Rising costs are affecting both businesses and consumers. Sorcha O'Neill explains why now is the time to manage these costs.

Sorcha O'Neill, Business Strategist, AIB

Many column inches, air space and viewing time has been given to discussions and debates revolving around one of the key features of the modern Irish economy, the ‘Rip Off Ireland' phenonomen.

As a result, Irish consumers are becoming more and more cost conscious and are now regularly shopping around in search of the best value for their money. This has led to consumers' and consumer lobby groups becoming increasingly focussed on the price that Irish businesses are charging and drawing comparisons between prices here and prices offered abroad. But often what is ignored in such comparisons is to compare the input costs for Irish businesses versus the input costs for businesses operating in other countries.

The fact is Irish businesses have been experiencing huge rises in their input costs over the past 3-4 years versus their European peers. According to a survey conducted by ISME, results show a significant rise in the key input costs for Irish businesses between 2002 and 2004.

In addition an IBEC study showed that waste charges, local authority charges and water charges have each risen by over 20% between 2004 and 2005. These figures are particularly high when you compare them to an overall annual inflation rate of 3-4% over the same time period.

Consequences For Irish Businesses

These increases to input costs have led to two key consequences for Irish businesses. Firstly, increases being passed onto customers resulting in a higher price being charged. In a survey conducted by the ISME, 26% said they are not able to absorb the costs themselves and are simply forced to pass increased costs on to the customer. And secondly, businesses absorbing these costs which ultimately affects profitability/margin levels and the overall health of the business.

Focusing on the latter point, even though costs are rising, there are still actions that business owners can take to better manage these costs to help improve their price competitiveness and/or their profitability levels.

Know Your Costs

FRUSTRATING COST RISES

ISME Survey - a snap shot oF the rise in the key input costs for Irish businesses between 2002 and 2004

Cost of electricity rose by 46% Local authority rates rose by 21% Insurance charges rose by 100% Waste charges rose by 123% Labour cost rose by 25% Diesel prices rose by 29% Gas rose by 42% Water charges rose by 63% Postal charges rose by 33% Retail rental rates rose by 33% Petrol prices rose by 36%

Be aware of the key input costs your business incurs each month/ year and conduct a root and branch review to identify costs that could be potentially reduced or removed.

Shop Around

Just as consumers are urged to shop around in search of best value for money, business owners should also follow suit. The selection of goods and services has expanded in recent years, as has the array of prices on offer. Once you know your key costs you should shop around in search of offerings that represent best value for your business.

Budget

By knowing when costs are going to hit and how much they are likely to be- you can budget accordingly. For large once off annual costs, it may be worthwhile assessing the finance options open to your business that will allow you to pay your bills and to smooth out seasonal peaks and troughs ensuring a healthy cashflow. Talk to your bank or financial advisor about the most suitable financial products to match your business' budgetary requirements.

Job Role

When it comes to cost management, it can be difficult to ensure that everyone is singing from the same hymn sheet. One way in which to overcome this uncertainty is to identify and assign a suitable member of staff and build the responsibility of cost management into their job role. This would help to instil cost awareness from the bottom up and would become an integral part of every employees working tasks.

Set Specific Targets

Only when specific objectives and targets are set and widely known can a business go about seeking to reduce costs. Targets are ideal in terms of a motivating factor to achieve goals but also as a reference point when it comes to assessing and measuring whether or not objectives have been met.

Rising business costs are a reality of the current economic climate and pose as an obstacle which Irish businesses need to challenge and overcome. It is recommended for you to follow the actions outlined above. These actions, coupled with awareness and understanding of the financial products available, will help reduce the burden of large costs on your business' cashflow and enable you to endure the cost threats that face business people in Ireland today.