Controlling Costs to Help Your Bottom Line

Jun 02, 2016

Small businesses must continually be looking to control costs as a means of helping their overall profitability. Whilst sales growth is very important, management should be just as diligent in the control of what is being spent to run a business.

Many SME’s have found that by embarking on a strict cost control review they have achieved the same profitability improvement that would otherwise have needed to come from a substantial increase in sales (which might not have been possible for the business).

There are a number of areas within most businesses that could benefit from a closer cost examination, including but certainly not limited to:

  • Electricity
  • Telephones
  • Stationery
  • Travel
  • Water
  • Bank Interest, Fees & Charges
  • Petrol
  • Entertainment
  • Advertising
  • Rent
  • Insurance
  • Packaging
  • Corporate Credit Cards

5 general hints to embrace on the road to achieving lower costs for your business

#1. Shop Around

Small business operators have to be conscious of the necessity to shop around to get the best price for various products. With the deregulation of electricity and telephone industries and the charging by usage for water, small business operators have to ensure that they are obtaining the best tariffs for their business.

#2. Review On An Ongoing Basis

Cost control strategies should not be a subject that is only considered once a year. There should be an ongoing strategy to review costs to see whether any savings can be affected. A checklist should be prepared of the key costs being incurred in the business and these costs should be analysed and reviewed on an ongoing basis to see whether value for money is being obtained.

#3. Know Your Market

An SME operator needs to be aware of what is happening in the market place with suppliers of products or services. If there is a new player in the market who is able to offer an improved product at a lower price and that supplier is a stable business, should consideration be given to switching to the new supplier, or at the very least, should negotiations be reopened with your present supplier in an attempt to negotiate a better rate?

#4. Avoid Being Overcharged

A common problem for many businesses is the sending of incorrect invoices to them from their suppliers, which include overcharges. It is not unknown for overcharges to have been deliberately raised. An SME needs to introduce an appropriate system, so as to attempt to detect any overcharging on invoices.

The type of polices that should be established include:

  • Obtaining quotations for all goods and services;
  • Preparing an official order on which is recorded the quoted price for the goods or services;
  • Checking the supplier’s invoice against the order - in particular checking quantity and quoted price;
  • Checking the extensions on the invoice; and
  • Ensuring that the correct quality of product was received.

#5. Run Regular Checks

There are many other activities that can be undertaken as part of cost control measures in a business. Depending on the type of business, examples of these could include:

  • checking garbage bins to see what product is being thrown out that has not been properly used or has merely been removed from the premises to be ultimately retrieved by a dishonest employee; or
  • checking fat and bone bins in butcher shops to ensure that all usable and saleable product has been removed.

Similar procedures could be introduced for a range of industries to ensure that the business is able to utilise the absolute maximum of product for which it has paid.