Cost Control Measures: not Necessarily an Unkind Cut

Most conventional businesses are in it for the money. Small wonder, that entrepreneurs have one eye firmly trained on the bottomline, and the other on their expenses. Cutting costs is the favorite prescription of financial controllers for increasing profits. While cost control measures are no doubt important, an overdose could well prove fatal to a business. It is therefore vital that cost control measures be applied in appropriate amounts in the right places. Let’s see what the doctor’s ordered.

Conjure up an image of your business’ monthly expense statement in your mind, and chances are that the following will stand out – staffing and employee benefits, sales and marketing costs, and those taxes, always those taxes! While you can’t escape the first two, since they are vital ingredients of the business, wriggling out of the third may have some unpleasant consequences! So, is there no way out, or can we come up with some smart cost control measures? You bet!

No doubt that cost of wages is going to form a very large component of small business budgets. However, there are ways to make it hurt less. Try to introduce an incentive component in managers’ pay packets. Link that to profit generating deliverables, such as increased sales or cost reduction. If the business outlook is on the up, an Employee Stock Options Plan can help limit the fixed component in staff compensation. Other cost control measures include usage of temporary workers and outsourcing non-core or administrative functions which do not justify employing full time staff.

Controlling sales and marketing costs can be a bit tricky. In lean times, this is invariably the first casualty, but that could often prove to be a costly mistake. Selling costs are a necessary investment, and unreasonably harsh cost control measures in this area can deal a death blow. Take a level-headed approach – plan travel schedules in advance to leverage lower fares for early bookings, strike deals with frequented hotels, or use a cheaper option; take recourse to lower cost marketing tactics, such as online promotion or PR as opposed to print or television advertising. In fact, this kind of approach should be ingrained within the psyche of your business as a rule, and not just called up during bad times.

The explosion in technology has helped take operations related cost control measures to a new high. The simplest example is the just-in-time (and other) inventory management system, that helps control the cost of working capital, and optimizes usage of expensive storage space. Sophisticated financial and accounting software can help analyze cost heads in micro detail, providing valuable insight to managers keeping budgets on a tight leash. Companies are looking at costs in a new light – allocating them to specific activities or profit centers, or measuring them in different ways. Vendors such as Tuppas have a software solution for virtually every operational activity, while Intuit through QuickBooks®, proffers accounting software tailored to small businesses. And while we won’t present any inane arguments about the importance of computers to present day lives, leasing rather than purchasing such equipment can prove to be a cost saving practice especially in the earlier stages of business.

If you are contemplating introducing cost control measures within your company, you’ll probably find the above arguments of value. Go ahead, by all means, but just make sure that it’s not a case of too much of a good thing….