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[Era] cost reduction guide - issue 1 - property and premises costs


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[Era] cost reduction guide - issue 1 - property and premises costs

  1. 1. Is your business costing you? find extra profit A guide to reducing non-core operating costs in the economic downturn Issue 1: Property and Premises Expense Reduction Analysts
  2. 2. Introduction Occupying, running and maintaining property is one of the largest areas of expenditure for any business. Whether you lease a state-of-the-art city It includes tips and advice on the centre HQ, own a commercial unit on an out- following areas: of-town business park or manage a multi-site estate across the country, the cost of your • Energy and utilities – are you maximising business premises will be a significant your chances of getting the best deal on overhead. energy prices? But the largest overheads can also offer the • Legal and finance – do you understand most potential for savings. the terms under which you occupy your property and are you up to speed with As company directors come under increasing the latest tax developments? pressure to reduce costs, this guide aims to provide a range of practical advice, examples • Building, plant and facilities – are you and market intelligence from experts in getting value for money from your the field to help ensure your business is building services suppliers? generating, not costing you, money when it comes to property and premises. 02 Introduction
  3. 3. Energy and Utilities The dynamics of the utility markets present an ongoing challenge to businesses large and small, says Neil Middleton, and there have been fundamental changes in the way energy is bought and sold in recent years. It is therefore essential that companies take a focused approach to energy procurement. 1 Show me the money 3 Effective portfolio management Whilst it is important to make sure suppliers One method of keeping better control of your are not building excessive margins into their energy costs, as the markets fluctuate, is to offers when negotiating energy deals, many take a proactive stance towards managing clients are not aware that it is actually the your portfolio of contracts. Particularly wholesale cost of the energy component important for clients with multiple sites, are itself which now makes up 70 per cent of the simple initiatives such as ensuring that all end price. With energy prices now fluctuating contract renewal dates are aligned and on an hourly basis, constant monitoring of implementing a consistent contract across the market and careful timing of renewals the estate which can reap benefits not just is the key to making real savings. in terms of cost but also internal admin/ accounting resources. 2 Timing is key Traditionally, energy prices have been By checking and validating energy negotiated in the weeks running up to bills to eliminate discrepancies as a contract renewal. However, given the they are generated, Expense volatility of the markets, the most Reduction Analysts can save competitive rates are now seldom available between 3-5 per cent of your energy just prior to contract renewal. In fact, it is costs. With Office of Government now likely that your offer will increase in Commerce calculations estimating price, or even be withdrawn, the closer the the average cost for a company to deadline for acceptance comes. Clients process and pay an energy bill at therefore need to time their renewals £65, this represents a saving of carefully and be ready to make a quick between £1.95 - £3.25 per bill. decision when the time is right. Energy and Utilities 03
  4. 4. Legal and finance “In testing economic times, both tenants and landlords have much to gain from a review of the terms of commercial leases and a creative approach to building occupation,” says Paul Giness. 1 Box Clever 2 It’s good to talk Despite Government attempts to the It’s not just tenants that will be looking to contrary, most commercial leases still provide achieve greater certainty and control over for upwards-only rent reviews so tenants their finances; landlords will also want to need to find creative solutions to their rental manage the risk of their tenants defaulting commitments. This might include sub-letting or vacating a property. With rental values part of the lease to generate an additional and overall demand falling, tenants are in a income stream or reassigning the lease to strong position to negotiate an exchange of another party, thereby transferring the goodwill with a landlord, which can deliver obligation. benefits to both parties. A client in Kent was reluctant to 3 Break out move out of an inefficient, partly Break clauses allow parties the opportunity used building because of potential to exit a long-term lease ahead of time. dilapidations costs of £145,000. However, particularly in the current climate, Through negotiation with the land- these can present a significant risk to land- lord, Expense Reduction Analysts lords who suddenly find themselves saddled were able to identify a no-cost exit with the liability of servicing, payment of route based on the redevelopment empty rates and re-marketing a property potential of the site, which reduced they thought would be occupied for some the dilapidations to nil, allowed time. As a tenant, you can add value to a closure of the office and secured landlord’s lease by suggesting the removal wider business benefits and cost of a break clause in return for a cash flow savings for the client. advantage such as a rent-free period. 04 Legal and finance
  5. 5. “Expense Reduction Analysts estimates that the removal of a break clause that’s effective within the next three years, over a lease term of at least six years, could result in an offer in today’s market of two - six months rent free occupation.” 4 Avoid Empty Rates 5 Check your rating assessment Tax relief for commercial property owners The rateable value of your property is based and occupiers with vacant units was on a 5-yearly revaluation by the Valuation significantly reduced in April 2008 in the Office – but don’t feel you have to accept it biggest shake-up to the system since 1990. without question. There’s every opportunity However, there are still ways to mitigate to appeal your rating assessment if you the additional cost of maintaining an believe it is incorrect and, if successful, empty, or partially vacant, building. the saving could be backdated to 2005 Consider a short-term let to another with interest. commercial tenant as this reduces outgoings and, following the sub-tenant’s Expense Reduction Analysts recently vacation, it may be possible to re-apply saved a national education provider for further empty rates relief. Further over £750,000 over a retrospective scope to avoid empty rates charges is three-year period through a review possible through charitable occupations of their square footage, altering the or by declaring that the building cannot basis of their valuation and merging be occupied, perhaps because it is in rating assessments into a much disrepair or is not yet complete. reduced rateable value. Due to individual site circumstances, it is always recommended to take professional advice before taking any action of this sort. The Dynamics of the Utility Market 05
  6. 6. Building, plant and facilities management The scope of the FM function is ever-widening as regulatory demands increase and budgets come under pressure. FM professionals are having to do more with less, says Ian Morrison, and, as a consequence, value for money from suppliers is the order of the day. 1 Knowledge is power 3 Get more for your money Too often, management of the effectiveness Every building needs ongoing maintenance of a company’s FM function relies on of one sort or another and there are savings anecdotal evidence rather than hard facts to be made not only in the cost of materials about supplier performance. It’s vital that themselves but also in the way they are organisations implement comprehensive procured. To ensure you get best value, and uniform systems for the measurement consider putting in place value-added of supply chain effectiveness so that procurement solutions such as a centralised accurate data can be collated and purchasing function for all sites, a supplier meaningful decisions made about the consolidation programme or a Vendor renewal of contracts. Managed Inventory (VMI) solution whereby a supplier might set up shop at your 2 Shop around premises and take on responsibility for Relationships with FM supply chain partners maintaining an agreed inventory of are becoming increasingly complex as a materials on site. result of the trend towards ‘one-stop-shops’ whereby various services are grouped In Expense Reduction Analysts’ together in one contract under the umbrella experience, only 30 per cent or of a single managing agent. Whilst there are less of supply chain contracts are immediate resource benefits in dealing with reviewed/renewed annually. This a single point of contact, single source supply means that, in the majority of cases, chains are not necessarily the panacea they suppliers are not being held to seem and clients need to ensure they have account on a regular basis for their full visibility of the costs and value of each performance and clients do not individual service provided. have adequate visibility of the value they are delivering. 06 Building, plant and facilities management
  7. 7. We were able to make savings of £175,000 per annum for an agricultural client supplying fresh produce to Tesco and Sainsbury’s through the introduction of a VMI solution. This involved establishing local stores for vital engineering consumables at each of their sites, ensuring spare machinery parts were always available and thereby reducing plant downtime. Expense Reduction Analysts is the world’s Expense Reduction Analysts has 150 largest cost management consultancy and consultants across the UK, specialising focuses on reducing non-core operating in more than 100 non-core business costs for private, not-for-profit and public expenditure categories. sector organisations. Look out for future issues of these Handling an annual supplier spend of cost reduction guides covering: millions of pounds on behalf of clients in all sectors, the consultants at Expense Issue 2 – Banking and Finance Reduction Analysts use their significant Issue 3 – Back Office Functions purchasing influence to achieve optimum value from suppliers, often successfully For more information contact retaining incumbents and using expert Expense Reduction Analysts analysis and market intelligence to combat on: 02380 892 737 ‘contract fatigue’. or visit our website at: The next step 07
  8. 8. find extra profit Argentina Australia Austria Belgium Brazil Canada Chile Columbia Ecuador France Germany Greece Hungary Jordan Italy Lebanon Luxembourg Mexico Morocco Netherlands New Zealand Panama Portugal Spain Taiwan United Kingdom United States Uruguay Expense Reduction Analysts