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:
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.
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.
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?
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:
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:
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.