If your organisation’s bookkeeping reveals a negative cash flow, there are a few ways to turn things around. You can find new income streams or you can slow your spending — or both.
But you don’t have to be in financial distress to implement cost cutting measures. Cost controls are also a preventative measure that keeps you from overspending in the first place. With carefully controlled expenditures, you can stay in the black. Read on to learn more about the keys to keeping expenses in check.
What is Cost Control?
Cost control is the practice of analysing a business’s expenses and financial data for the purpose of reducing spending. Putting cost control measures in place can keep your budget on track, help you evaluate your spending patterns, and allow you to make informed projections. The process seeks to identify opportunities to eliminate or reduce spending streams.
Cost controls compile both fixed and variable costs and divide them into cost centres. Once both types of expenses have been properly attributed to the correct centres, your financial staff can begin strategising about ways to cut back on spending and increase revenue.
Common forms of cost cutting include:
- Layoffs or reducing staff hours
- Limiting staff travel
- Finding less expensive suppliers
- Bundling services for discounts
- Reducing non-essential perks
- Lowering leasing costs
- Buying in bulk to reduce per unit cost
Why cost control matters
Out-of-control spending will torpedo a promising company in no time. When you implement cost controls, you can nip problems in the bud.
A cost management system helps your business:
- Maintain responsible hiring practices. Can you really afford to hire a new full-time bookkeeper? Overspending on payroll is a common mistake in growing companies. Alternatives like part-time staff and remote contracts can cut costs without leaving you short handed.
- Keep budgets on track. Defining a budget for each department and project is crucial. A cost cutting analysis identifies areas where you can reduce your budget and come in at or under your desired costs.
- Make plans for scaling your organisation. Pinpointing where you can cut costs also makes it easier to scale at a responsible pace. A solid cost cutting plan will identify when you’re ordering too much inventory or spending too much on storage. You will grow when you’re ready.
- Set expectations for staff spending. A report in hand allows you to communicate about spending more effectively with your team. You can let your project managers and other team leaders know exact spending parameters so they don’t go over budget.
- Define spending-conscious deadlines. Is your team wasting time? Time management problems are a major reason for overspending. Cost cutting may mean shortening deadlines.
- Increase profitability. Ultimately, cost controls serve to make your organisation more profitable. By lowering payroll costs, cutting unnecessary expenditures, and becoming more efficient with time management — you can reap better profit margins.
- Set appropriate prices. Cost control analysis can determine the cost per unit of whatever it is that you sell. Once you factor in labor and material costs, you may realise it’s time to increase the price tag of your product or services.
Strategies for Keeping Your Expenses in Check
You believe in the merits of cost control management. But how exactly do you go about implementing effective measures? These strategic moves are a savvy way to figure out which costs need to be reduced.
Define specific KPIs
Do you want to manage staffing costs or reduce your technology expenses? You can’t know whether you have succeeded in cost cutting unless you know what your goals are. A key performance indicator (KPI) is a specific metric that helps you define your wins and losses. For many companies, KPIs include things like achieving a specific profit growth or increasing the number of client accounts. In regards to cost controlling, KPIs may measure how much you lower your expenses in specific areas.
Anticipate market fluctuations and inflation
You should also consider market changes when you plan for cost cutting. As inflation requires a larger budget in one area, you may have to control costs elsewhere. A cost control plan needs some flexibility to adapt to changing conditions.
Track expenses in real time
Reviewing past spending is good, but tracking real-time expenditure is better. Red flag overspending before it goes too far by using software that tracks your costs as they happen. That way, you can identify issues sooner rather than later and adjust as necessary to meet your goals if unnecessary spending occurs.
Consolidate your purchases to negotiate better pricing
Everything from insurance to bulk item purchases can often qualify for a discount if you ask. Consolidate your purchases to fewer vendors to give yourself some leverage. For instance, property insurance and auto insurance may be bundled for a better rate. You may be surprised at how much cost cutting is possible with a few simple changes.
Prioritise your contractor and supplier relationships
A supply shortage or price increase can really mess with your annual budget. Controlling your costs also means maintaining the relationships that may lead to price discounts. If you make your supplier relationships a priority, they may make you a priority when you need it most. Cultivating relationships can also mean referrals and other income streams in the future.
Outsource your bookkeeping with Visory
Outsourcing your bookkeeping and reporting can also be a part of a cost control plan. When you entrust your books to a virtual team, you free up funds on your payroll budget and gain access to an informed team. You can add new members to your Visory finance team as you need them. Your virtual team will scale with you. Visory can also analyse your current financial picture and recommend cost cutting measures.
Cost control strategies are key to running a successful enterprise. Identify key performance indicators, then cut some fat to meet your goals faster. If you need some help, learn how Visory’s reporting can help you identify opportunities to minimise costs.