Unlike large corporations, small to medium businesses seldom have a financial safety net when times get tough. If cash flow is already an issue, they can quickly find themselves falling into debt, or unable to pay suppliers and generate the income they so desperately need. But by implementing a forward-thinking cost management culture that makes the business more sustainable when times are good, even the smallest business can avoid this.
Cost management isn’t necessarily the same as cost cutting, (although there is definitely an overlap) but rather creating a culture of saving money wherever it makes sense to do so, even when cashflow is ample and business is good. Just because you can afford to splurge on a fancy new coffee machine for the office now, the chances are you won’t see much return on your investment.And your employees certainly won’t thank you if overspending now means potential job cuts later.
So how do you create this culture of good cost management? Let’s take a look!
You can’t manage what you can’t measure, so the first step in implementing a cost management strategy is sitting down with the figures and taking the time to identify areas of wasteful expenditure. Obviously the costs associated with doing business differ tremendously from industry to industry, so there’s no one set template for doing so. It can be helpful to break your expenses down into different categories – such as travel, utilities, cost of operating equipment, salaries and wages, telephone and internet resources, etc. This makes the overall evaluation easier as you now have more manageable chunks you can deal with one at a time.
Now compare these costs against the profits they actually garner for the company. This sounds tricky, but for the purposes of your first assessment the numbers don’t have to be perfect, as long as they give you a good overall picture. Through this process, it becomes easier to identify costs and expenses that create little value for the business – and therefore gives you an excellent starting point for the costs you should be trying the hardest to manage.
As an additional side benefit of this waste identification exercise, you’ll almost certainly also gain valuable insight into what the most profitable aspects of your business are, and can make sure you spend time bolstering and expanding these. Anything that creates value for the company is a resource, whether it’s physical equipment or human talent, and you want to make sure you’re letting them achieve their full potential. You need to spend money to make money, after all, but you want to ensure you’re spending in the right places!
An excellent example of this is travel expenses. Sending your best salespeople out to meet with new potential clients might be essential to growing your company, but can you make the exercise even more profitable by making better scheduling decisions? By focusing all your efforts on one small geographical area at a time, for example, you can potentially meet with more clients at a lower cost to the company, and make life easier for your salespeople too.
Outsource and work with Partners
If a cost is essential for the day to day running of the business but doesn’t bring in direct revenue, outsourcing it or working with a specialist partner to manage it can free up time and money. Depending on your industry, this could be outsourcing a function like payroll or creating content for your website, allowing a trusted utility management partner to optimize your municipal expenses for you, or any other activity that takes up time but doesn’t directly generate revenue for you.
Thanks to the web, you don’t even need to use providers in your direct area, and you can even take advantage of different time zones to get work done while you sleep! Let’s say you need a PowerPoint presentation put together by tomorrow morning, but you also need to meet with a client this afternoon. By outsourcing this task to a freelancer in a different country, it’s possible get a professional result at a competitive rate in the time frame you need it – while you’re free to do what you do best.
The single most important factor in whether a cost management strategy works or not is a commitment to continuous assessment. Changes in your industry, the size of your company, fluctuating raw material prices and any number of other factors are seldom static. You will need to revisit your cost management strategy regularly to make sure it’s still serving you as best it can. The good news is that the more dedicated you are to the process, the more sustainable your company becomes.