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Keeping control of your business costs.

The key to the success of your business is that your income should exceed your expenses. Your profitability can be improved by increasing sales, but it can also be enhanced through the reduction of costs.

A business which keeps its costs under control will be able to release more resources for growth in the good times and will be in a better position to survive in recession.

Managing Costs

Cost control is only possible in a well organised, well managed business.

(i) To control costs, you first need to know about them. Every cost should be identified clearly and records of bills, etc should be kept.

(ii) Costs need to be reviewed on a regular basis. It is not enough to calculate whether your business is in profit or loss, you also need to be aware of what normal costs are, so that anomalies can be spotted and corrective action taken.

(iii) Some costs will be more important to control than others. It is important to know what your critical costs are and to concentrate on reducing them.

(iv) Cost control is the responsibility of everyone working in the business.

All staff have many opportunities to affect costs and if kept motivated and they feel part of the business, they will work economically without supervision. It is also a good idea to involve employees in coming up with ideas to reduce costs.

(v) Many staff can assume that any savings they might make are insignificant, however informing them about the impact of costs on profitability can help change their attitudes.

Direct Cost Control Measures

(i) Cost Benefit Analysis

Cost awareness should be a key part of your planning process.

The overall impact of any decision should be understood in terms of business profitability, ie the benefits of a particular course of action should be set against the cost.

(ii) Value Analysis

Value Analysis (VA) takes each part of a product, service or system and subjects it to detailed examination to determine if there is any way in which its costs could be reduced without affecting quality.

VA is usually done in a group and is a good way to involve employees and increase general awareness of cost control.

Each aspect of the product is challenged with questions such as: is it necessary, can it be made with cheaper materials, can it be bought cheaper than it costs to make etc.

(iii) Purchasing Methods

Significant savings may be derived from good purchasing practice as no bill or invoice your business receives should be taken for granted. Generally speaking, it is advisable to:

* Look for discounts for buying in bulk.

* Be prepared to haggle.

* Review the cost of supplies and suppliers on a regular basis.

(iv) Stock Control

Accurate control will reduce storage and working capital costs and effective security should reduce the cost of stock lost through theft.

Controlling your costs

* Staff - Staff costs often contain the greatest scope for savings.

Can fewer people be employed to do the same task? Are they motivated and monitored appropriately to ensure they deliver value for money? Is their remuneration appropriate - too much is costly, too little may lead to a high staff turnover, which is also costly, and may impair performance.

* Energy - Staff should be encouraged to use energy responsibly as some of your biggest savings can lie within some of your most basic costs, eg gas and electricity.

Bills should be checked for any anomalies. It is worth having meters double checked, especially if the business uses a lot of energy.

* Telephone - Telephone calls are another basic company cost offering potential savings. It is necessary for private calls to be made from work, however rules for personal calls should be made clear in order to avoid misuse. It is also possible to get itemised bills for each extension.

* Copying - Photocopies and laser copies are easy to use and the expense can soon get out of control if usage is not monitored. Staff should be charged for personal copies, and discouraged from making unnecessary copies.

* Stationery - Many people take home stationery for their own use. It is wise to keep the store cupboard locked and make someone responsible for issuing materials.

* Expenses - It is possible to reduce misuse of expenses by drawing up clear guidelines so that everyone is clear on what is and is not acceptable.

Expense claims should be cleared by a responsible person before being paid. Expenses for individuals should be reviewed periodically and anomalies investigated.

* Recycling - All waste should be examined for potential recycling or resale to recycling companies eg some companies send industrial plastic waste for recycling, used laser printer cartridges can be refilled at a discount price.

Useful Tips

1. Be aware of false economies, cutting corners could lose sales.

2. Confront cost problems immediately before the problem gets out of hand.

3. Planning improves efficiency.

4. Cost control depends upon efficient accounting practice.

5. Evaluate your suppliers of telecommunications, gas and electricity as a more cost effective package of services may be available.

Whatever your financial management needs are, Business Link can help by working with you to build an understanding of what your business wants to achieve and can help identify the most relevant assistance and, if appropriate, help with the identification of funding to ensure you achieve your objectives.

Call Business Link on 01642 806666 or e-mail to see how they can take your business to the next level.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2003 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Business Weekly
Publication:Evening Gazette (Middlesbrough, England)
Date:Dec 3, 2003
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