Keeping control of your business costs could be a vital step towards your success. We take a look at 6 ways to keep your costs in check.
Quick takeaways if you’re in a hurry
1. Being aware of your financial position is a key first step in understanding your business costs. Look backwards as well as forwards and evaluate your situation
2. Keeping your headcount static is an important element of controlling your costs
3. Focusing on your supply chain will allow you to take a proactive approach to the money leaving your business. Think 12 month contracts, minimal stock holdings, and a full evaluation of the costs of doing business with your suppliers.
Read on: Crucial steps to controlling your business costs
(estimated reading time: 6 minutes)
It’s easy, and sensible, to focus on sales and revenue when you are working to make your business as profitable as possible. But the reality is that improving your cost position has a faster impact on your bottom line. If you’re ready to take control of your costs, read on for our six cost control tips.
1. Practise excellent book-keeping and accounting
If you want to stay in control of your business costs, a vital first step is to get your head around what they are. Retrospective inspection of your accounts will take time but is a good investment in understanding your opportunities for cost control. Planning ahead will allow you to identify where you do and do not want to spend money.
Set some time aside to identify the best tax position for your business. This could offer opportunities to reduce costs. If you don’t have the right resource on your team, it could be worth employing an expert to give your business a thorough review.
2. Maintain your headcount levels
Good productivity is often measured by reviewing the profit you generate per head of staff. Therefore increasing your headcount has an immediate negative impact on your productivity, unless they represent a dramatic increase in sales.
If you find yourself in the position of being under-resourced, review the effectiveness of your team and consider replacing the lowest performers of your workforce with staff who will match the highest performers. If this still doesn’t yield the resource you need, consider recruiting contractors or freelancers rather than permanently increasing your headcount.
3. Be efficient with your energy consumption
Energy bills will contribute a considerable chunk of cost to your business. But there are simple (and more complex) steps that you can take to be more energy efficient. Energy efficiency is also a great target to head for if you want to focus on sustainability.
Consider laptops rather than desktop computers (they use 90 percent less power); review your lighting options and consider either switching to LED lighting or introducing natural light to cut down on electricity consumption; make sure your lights are switched off overnight. Implementing energy efficient office practices is an effective method of cost control.
4. Renegotiate your contracts annually
Longer contract terms are easier to manage for you, but tend to financially benefit the supplier you’re working with. If you want to keep your supplier costs under control it’s wise to bite the bullet and keep all contract terms to 12 months.
This will mean you have to deal with the paperwork when it’s time to renegotiate, but it should also mean that you have the power to keep your costs in check and even potentially reduce them annually.
5. Manage your stock levels efficiently
If you deal in stock or raw materials, it’s important to be efficient in forecasting your requirements. It’s certainly easier to have the products that you need on the shelf in your warehouse, waiting for you to use them. But the reality is that your business will incur the cost of the product and the cost of storage. And at the same time the product will not be generating any revenue for your business.
Stock can easily become a black hole that swallows all the available capital of your business. Think lean with your stock ordering and only order what you need for production. Understand your lead times and minimise the time that stock sits on your shelves.
Close scrutiny of your supplier options may yield efficiencies of cost that are masked by upfront price differences. For example, it’s easy to choose the cheaper sales price, but if there is a considerably greater lead time your overall product costs could end up higher once you factor in warehousing and storage costs.
6. Stay in tune with your customer’s needs
Your customers need to be happy, and are a good sounding board for cost control practices. It’s important that any changes that you make to your cost structure do not have a negative impact on your customer.
You can protect the customer’s position by being clear where product adds value, and where it doesn’t. If your customers don’t see value in product features or benefits, you can consider removing them and saving costs. Alternatively you could reinvest the money into features and benefits they do value. Either way, you’ll be getting much better value from your money.
Being aware of your current costs is an important first step in taking control of them. Once you know where your business is spending money, you can decide where it adds value and where it does not. Keeping control of the costs that exist is a matter of making sure they don’t grow. Reducing costs requires you to ask whether they are delivering results for your business, and taking action if they don’t.
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