Not necessarily. If it is possible to get a good rate, it may be worth locking it in. But what is a good rate, and what are the potential catches?

It is hard to get really good rates from mainstream suppliers at present. They appear to be pricing fairly similarly and increasing their margins relative to recent years. There is noticeably less willingness for them to build market share through competitive pricing, and if you ‘shop around’ the usual suspects you may well get a false picture of what is truly a ‘good rate’.

So where are the bargains? We’re seeing niche suppliers performing particularly well in tenders at present, and occasionally mainstream suppliers if they see their sales figures slipping. Having 200 consultants sharing knowledge on who’s ‘hot’ and who’s not is a vital part of the Auditel armoury when it comes to minimising costs for clients.

What are the risks with long contracts? The most obvious one is you are locking the price.  If the market falls, you won’t benefit from it and your competitors might. Conversely, if prices carry on rising, you can be paying significantly less than your competitors.  There’s no right or wrong answer, and we always review options and trends with clients to help identify what is likely to be the best option for them.

A major risk with long contracts is that you are more likely to fall foul of penalty charges. Frequently with gas suppliers, and increasingly with electricity, we see clauses in the Ts & Cs that allow them to charge substantial penalties if you end the contract early (eg move premises), use less energy than expected, or even use more than expected. These clauses are usually worded very vaguely, and give the supplier considerable discretion on the scale of penalties they can choose to levy. If you find yourself in that position, seek expert advice asap.

Finding the best long-term value is not just a question of the price, but quantifying hidden costs and potential penalties. The devil is very much in the detail, which is why it is essential to go through historic invoices, check actual consumption vs (frequently) inaccurate official estimates; understand the pros and cons of each supplier; and to know where your organisation is heading. Understanding the risk:reward of various options is a vital part of minimising long-term costs. That’s one of the reasons to be wary of the cheapest option – it can prove to be astonishingly expensive.

King Henry VIII was in a dilemma. His beloved Jane Seymour, iWife v 3.0, had died shortly after childbirth, and he needed to upgrade to v 4.0. He had a good idea of his requirements, including beauty, education and culture.  Thomas Cromwell, his chief adviser, overlooked these details and instead encouraged a match with Anne of Cleves to gain a vital strategic alliance with the Germans. The painter Holbein was despatched to produce a portrait of both Anne and her sister Amalia (it always pays to have a backup), and extensive negotiations began. Anne was sent to England amidst much pageantry, and in due course was married to Henry. Once the confetti had settled and reality sunk in, both sides were disappointed to find that reality bore little resemblance to the marketing (sounds familiar?). Henry, somewhat ungallantly, described his wife as ‘that great flanders mare’, and just after the marriage told Cromwell “I liked her before not well, but now I like her much worse”. He set about extracting himself from the marriage, and Anne cooperated in the process in return for a generous settlement that included Richmond Palace and Hever Castle. It was costly for Cromwell too, who lost his job, his property, and his head.

What does this have to do with modern business?  Many potential suppliers portray themselves rather flatteringly, with attractive prices, packaging and promises. However, inconvenient truths are often hidden in the hype, and too many companies find themselves ‘married’ to the wrong suppliers. Without expert knowledge and careful scrutiny of the details, it is far too easy to be caught out by costly clauses and tricky tactics. The headline price only ever tells a fraction of the story, and matching and managing the terms and tactics of the supplier to the needs of the client is a vital part of minimising cost and risk. That’s what we do, and because we’re measured against a benchmark that you approve in advance, you can be certain that working with Auditel will always have a lower overall cost than managing things yourselves. It’s also more fun, less time consuming, and far less stressful.

Could Auditel have prevented an expensive mistake for Henry? Well, we may not have been able to get his electricity, gas or telecoms costs much lower, but our free review would certainly have given him a detailed and objective assessment of his options. And because we are paid on results, our work never costs an arm and a leg – let alone a head and a castle.

As an outsider, it is hard to judge the situation there objectively, but I have certainly noticed a hardening of their attitude this year and some dubious behaviour towards existing clients. There have been examples recently of customers missing their termination notice (easily done) and then finding themselves trapped in 2 year contracts and being charged nearly twice the going price.  Readers can form their own opinions as to whether or not this is immoral profiteering, placing excessive burdens on businesses who are already struggling.  It certainly does little to enhance the reputation of British Gas and one could be forgiven for wondering if they  are trading long term customer loyalty for short term (bonus driven?) profits.

Ofgem made an attempt to reign in this sort of behaviour, but seemed to lose the rigidity of their spines along the way and ended up with some very disappointing changes that have added minimal real benefit to business customers.

Having looked into this, the big trend right now is for ‘Software As A Service’ systems – basically online hosted packages. The one that stands out to me is Xero – an innovative and attractive system developed by some clever folk in New Zealand, and taking the world by storm.  On their pricing model, you can have as many users as you like, and they give good discounts for multiple organisations. They have a far more business-friendly approach, and even developed applications to give you remote access via Blackberry and iPhone.  All this for significantly less than conventional software licenses, and accessible via all the major platforms including mobile.

Any drawbacks? Well, each business has different needs and has to check whether this suits them.  One issue is that it does not yet have an integrated payroll system.  It does link to 3rd party payroll systems, but the interface does not yet appear to be totally seamless and relies on importing data. That being said, their data import system is a model of ease and efficiency, so this is not a major barrier.  Also, a good cost-cutting measure for many businesses is to outsource their payroll. The cost of retaining full-time staff for this is considerable, and independent providers are often cheaper and more effective.

Another concern for the more security conscious is data backup.  Xero do take data security ultra-seriously, with multiple back-up processes in place, but you are ultimately still dependent on a 3rd party. This can be mitigated by exporting detailed general ledger entries, and regularly running detailed reports, and they are developing manual data downloads to act as independent backups. On the other hand, many UK companies do not have 100% robust backup processes, and a company like Xero who’s very existence depends on 100% reliability is likely to take the greatest possible care of the data.

For me, Xero looks great. They offer superb customer service and are clearly investing heavily in producing a very user friendly system that meets the real-world needs of business managers. The central hosting / remote access model means that your staff, managers and accountant can all be looking at the same information wherever they are – and so can you form your phone or home computer. This is modern management – mobile, flexible and responsive.

This isn’t to suggest that Delia will become a cat-stroking Bond villain, or that Mr Ramsay can solve all our economic woes in his own effing way. Instead, the theory is that when early man learned to cook, it allowed him (or more proabably her) to evolve a much shorter and less energy demanding gut, releasing spare energy to support an increasingly large brain.

Remarkably, the brain uses up to 20% of the body’s energy, and has the equivalent energy output of a 20w bulb. Now we all know a few folk for whom this may be closer to a 1W fairy light, but the important thing was that an innovation in one area released resources from another, which could then be invested where they really add value – brain power.

Cue Auditel. We effectively provide a free service that enables our clients to reduce the demands of their  boring but important ‘digestive processes’ and divert this valuable time and money into more strategic areas that can help grow their business.  We can’t promise this will turn them into the most powerful creatures on the planet, but they should see benefits remarkably quickly. Certainly a lot sooner than 3 million years.

One of my great loves is business strategy – working out what a company needs to be better at, and what it needs to do, to be more successful. It’s a fascinating field and one that can deliver huge improvements to the fortunes of any organisation.  ITV has successfully made itself more profitable, which has given lenders more confidence to finance it, which has lowered their cost of capital, and allowed them to start the costly move out of their historic and massively regulated traditional market into areas where they can use their creativity to compete commercially. As well as being an excessively long sentence, that’s quite a trick in difficult times, so hats off to John Cresswell and his team for achieving it.

While I would love to be managing some of ITV’s costs for them, they have yet to sign me up so there is still the chance for other organisations to get in first. If you could do with additional time and funds to grow your business, it may be worth an informal chat to discuss opportunities. Meanwhile, ITV’s strong performance shows that anything is possible even in the toughest markets.

However, as professional consultants we genuinely believe (and are usually right!) that there will always be something somewhere that can still improve further. Having gone through nearly the entire alphabet of overheads, we got to W for Waste. Yes they had negotiated excellent rates for their waste contracts, but they were still paying a large amount of money each month.  We went to look at the operation, and it soon became clear to me that with some minor modifications they could be saving up to £1,000 per month on their waste bills.

As Churchill was fond of saying, and as the Welsh Rugby team proved against Scotland recently, you should never give up, never, never, never, never.

So, how does this help businesses?  Well at the moment we can sometimes negotiate very good 3-year + rates for electricity. You pay a slight premium for these, but this is often less than inflation, so you effectively will get a discount each year – the higher inflation goes, the more of a discount you get.  Add to this the likelihood of increasing energy costs as governments try to reduce carbon emissions, and energy production becomes constrained by limited capacity and burdened by the need to re-invest, the idea of fixing costs at good rates is increasingly attractive. Long contracts aren’t always the best option for an organisation, and some rates are better than others, but the detailed costings and projections we produce give you the information you need to make the right choices. Even if you are tied into long contracts, we may still be able to help, so feel free to get in touch for some informal advice.

Auditel provides a free business health check to identify cost reduction opportunities for charities, businesses, schools, accountants and other organisations. Any Managing Director or Finance Director looking to improve the profitability or cash flow of their business should contact us for impartial advice.

Plastic packaging, cardboard, paper, glass, plant and food waste can all be expensive to dispose of. However, this costly problem can be greatly reduced with some specialist expertise. Turning muck into brass is possible and will help the planet as well as your balance sheet. Corporate Social Responsibility programmes can make a positive contribution to your profits as well as your PR.  So if you are spending £1,000 or more per month on waste disposal, talk to us about turning this cost into cash.