Cost cutting is a feature of business regardless of what is happening in the economy. To maximise profits, business owners need to not just control costs but reduce them. Even in thriving times, cutting costs should result in a more efficient, therefore more profitable business. Here are 3 major factors in managing business costs:
1. Assign Budgetary Accountability
Every department, division, and team should have a budget. Budgets should be set for whichever hierarchical structures there are within your business. This does mean there will be budgets within budgets, within budgets. Each of these component budgets should be assigned to someone to manage. Of course, there will an overall accountability but everyone in the organisation should be aware of their role in meeting the targets.
2. Understand Your Numbers
A budget or cost management program is only going to be effective if you have a good handle on the numbers and more so, an understanding of the impact on your bottom line of any changes. It is not always just about the Profit and Loss Account. There is so much software available to help executives and managers understand their costs to a deep level. Understanding where costs are incurred, when and how and by which section, is imperative to gaining a perspective on managing said costs.
Cost Management is an On-Going Strategy
A successful business constantly improves their cost management to maximise efficiency and profits. It should not be a knee-jerk reaction to a sudden realisation that your P&L is looking unhealthy. A company that is control of its numbers is able to be proactive in cost management rather than reactive. It is also better prepared should it meet unforeseen circumstances that could impact the bottom line.