6. Manage Control Grow



Control - Costs

Control Costs by using these techniques
Here are some techniques that you can use to help reduce costs.

  • Try and keep your costs within the industry averages.

  • Every expense category in the profit and loss statement should be reviewed to identify opportunities to reduce costs.

  • Join together with a buying group when purchasing goods, to obtain the discounts through volume buying.

  • Ensure that the inventory or stock levels are kept at minimum, sufficient to maintain sales orders and yet ensuring that cash is not tied up in stock that is not moving. This will have the effect of reducing costs and providing a positive impact on profitability. Inventory carrying costs will include such things as interest, storage, insurance, damage, deterioration etc.

  • When putting together contracts, always negotiate the time of payment, as well as the actual price. This will help to improve cash flow and increase cost savings.

  • Look closely at all overheads costs such as rent, power, phones, interest charges etc because the reduction of fixed costs will increase profitability immediately, without any requirement of increased revenue.

  • If necessary, reduce for a time the remuneration paid out to managers and business owners until such a time as the profit position of the business improves.

  • Lease equipment and machinery, rather than outlaying cash. This is especially helpful if the time period you need the equipment for is less than a normal ownership period. For example, you may need equipment for 3 months, so purchasing the equipment which would last for give years, is probably not a wise move. Leasing will result in cost reductions.

  • Train all staff because this will result in increased productivity and reduction in expenses of the various departments.


Areas to look at for Cost Reduction

Risk will always be associated with the activity of the business. The trick is to manage risk and in doing so, reduce costs. Unexpected occurrences will generally result in increased costs, so these have to be minimised, if possible.

Some of the areas that need to be looked at include:

  • Legal costs. It is best to negotiate a solution, rather than fighting in the courts.

  • IP infringements. Be careful that you don’t infringe the intellectual property belonging to other businesses because it can be a very costly exercise.

  • Suppliers. Maintain good relationships with your suppliers and make full use of any quality discounts or specials on offer.

  • Maintenance. Make sure that the business machinery is fully maintained, as breakdowns can be costly.

  • Credit. The inability of customers to pay for their purchases, or the delay in the eventual payment, costs the business - a credit policy needs to be properly managed.

  • Damage. Make sure that staff and management do not take unnecessary risks within the business or workplace area. Any unexpected damage will result in unnecessary costs.

  • Insurance. Make sure that the business is fully covered for disasters and other events that might occur. Without insurance cover the resulting cost to the business can be substantial.

  • Staff. Make sure that staff members are fully aware of operating in a safe environment, in a safe manner. This may involve training as well as ensuring that cover is provided to meet any
    actions that can come through staff losses.

  • Tax. Make sure that every expense is noted so that tax deductions will apply to every cost in the business. This will reduce the taxation expense, which results in increasing the profitability.

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