As your business grows, costs will inevitably increase. Many growing businesses are so focused on increasing sales that expenditure is ignored. An important part of any growth plan is the introduction of a cost control system which can bring immediate savings and ensure that you remain competitive in the longer term. However cost control needs to be carefully managed as indiscriminate cost cutting can lead to falling quality and poor morale.
How we can help
The TAX Partnership works with businesses of all sizes throughout Derby and the East Midlands and can assist with the implementation of a cost control exercise. Set out below are some general ways in which to control you businesses costs however if you would like to discuss your own business please contact us.
A good starting point would be to look into the largest costs of a business. These would usually be the direct costs where even a relatively small percentage saving can translate into a substantial increase in profitability. In order to reduce these costs of sales you could:
- Negotiate price reductions or higher discounts with your suppliers – perhaps by offering earlier payment.
- Consolidate purchasing with fewer suppliers to obtain better discounts.
- Agree long-term supply contracts or guarantee minimum annual purchase volumes in return for lower prices.
- Build personal relationships with suppliers to encourage preferential treatment.
- Charge transportation costs to the customer.
- Integrate and coordinate the purchasing, production, stock control, and sales functions.
- Liquidate deteriorated or obsolete items in stock.
For many businesses, wage costs account for a substantial proportion of total costs and therefore staff salaries need to be monitored. However reducing costs by reducing the number of employees can have a negative effect on the business as a whole and therefore, of all cost control exercises, reviewing staff costs needs to be managed most carefully.
A good starting point would be to examine the processes of the company to identify any duplication of tasks and to cut out time wasting. Other ways to control employee costs include:
- Give salary increases based on productivity or on the completion of objectives or goals.
- Provide incentives, such as profit-sharing, that give each employee a stake in the business results.
- Cover only the positions necessary – avoid overlap and redundant duties.
- Do time analysis to monitor productivity and to keep overtime to a minimum.
- Avoid unnecessary or inefficient meetings.
- Outsource non-core activities.
- Use consultants, freelancers or part-time employees, instead of full-time employees
- Make more use of technology and automation.
Reducing Overheads and Other General Expenses
Overhead expenses are present in every business, from a small home-based business to a large production facility, and some of the same cost-control concepts can be applied in all of them:
- Turn off lights or other energy consumers when not in use. Automatic light switches may be a useful option.
- Maintain an appropriate temperature – not too cold in summer, not too warm in winter.
- Control the use of office supplies. Keep them in a safe place, in an orderly manner, and assign responsibility. Keep an adequate stock, but don’t oversupply.
- Control the use of the telephone. Choose calling plans that most closely fit the needs of the business and avoid overages.
- Use fax machines as necessary, when they are the most efficient form of communication.
- Use e-mail efficiently and prudently. While the cost may be minimal, the cost in terms of productivity can be substantial.
- Choose the most efficient postage or courier rates based on need. It may not be necessary to send everything first class.
- Carry sufficient insurance coverage to adequately cover risks. Higher deductibles for incidents with a low risk of occurrence may reduce premiums.
- If possible, negotiate rent or lease contracts.
- Design, implement, and carry out an internal control program to safeguard all assets.