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Controlling Business Costs
Do you have a great product, but never make any money
because you cannot stick to a budget?
If the answer is yes, then you are not alone. Many companies have great
products and services, but never make any money because they do not know how to
effectively budget. With astute financial management, you can make savings in all areas of your business.
All businesses, large or small, should have an up-to-date budget. This budget
should detail every amount of money that is spent, what it is spent on. This
can then be compared with financial results to determine which items in the budget are necessary and which are not.
Once the budget is in place, you
should look at the following things in order to start making savings:
First principles
To reduce costs, you should apply the ‘first principles’
of financial management to every
item in your budget. The questions
you should be asking yourself are:
- Can
the item be removed from the budget
without damaging the profitability of the business?
- Could
the specification of the item be reduced in order to cut costs?
- Does
the item cost more than the benefit it delivers?
- Can
the same outcome be achieved more cheaply by some other method?
- Can
the item be combined with another item on the budget to reduce costs?
- Can
it be done less frequently without harming the business?
- When
was the last time competitive price quotes for the item were obtained?
If you answer these questions, you will start to recognise
which items on your budget are
necessary and which are not. With some simple financial management you will immediately reduce your budget and make savings.
Forecasts
With your budget
now streamlined, you can compare your costs with sales forecasts in order to
determine any money that you might need to borrow. This will help you to manage
your costs on a long term basis, and also reduce your budget further by having pre-arranged overdrafts in place with your
bank in case you do need to borrow money during harder times. If you are not
experienced with financial management
and comparing your budget to sales,
you can always hire a professional to do this for you. Although this costs
money, it will help to make your predictions more accurate and so give you a
better picture of financial requirements.
Purchasing
In order to make savings
to your budget, you need to be
extremely careful when purchasing products or services for your business. If
you want to get the most out of every pound you spend then you should:
- Conduct
careful research – the more research you do, the more likely you are to
make savings to your budget. Buying the wrong item can
be very costly, and is a sign of poor financial
management. There are many examples of free, independent brokers and
advisers that can help you to find the best deal.
- Make
lists – select a supplier for your purchase based upon a list of criteria
such as price, availability, location and delivery time. That way you can
see which supplier offers the best value for money. You can also use the
list to bargain with suppliers on criteria such as price, and so reduce
your budget further.
- Save
something for the end – When buying an item, try and leave one of your
requirements until the very end of negotiations. For example, if you want
a year’s warranty, then mention this at the end. Fearful of perhaps losing
the sale, the supplier will often agree to this term and deal with the
consequences later. This is a good way to get more for your money, and so
make the most of the items in your budget
that are necessary.
Save money
To reduce your budget
further, there are a number of other steps you can take, including:
- Offering
a preferred method of payment to a supplier in exchange for a discount.
- Ordering
items in quantities that will reduce the cost per unit, if they are items
that you will continually use.
- Checking
all the items that you buy, to make sure that the quantity and quality are
correct. Financial management
of this kind will ensure that your budget
does not increase through having to reorder products and so slowing down
your own business.
- Waiting
until you are satisfied with the goods you have purchased before settling
your balance. This may not always be convenient or possible, but it can
save you money if the product you purchased is not to your satisfaction.
That way you can just send the product back and do not have to worry about
reclaiming money, which can cost time and extra money.
Be prepared to sacrifice
If you stick to your budget
you can keep your business steady and successful. Sometimes this means you
cannot always buy the items that you want. Short-term successes may be
tempting, but if your financial
management is poor, you will not last long. Only buying the items you need,
and waiting until your business is established before adding new items to your budget, will help you to make continued
savings and be successful.
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