Driving the bottom line through profitable revenue growth is the key objective of every business. However companies also need to focus on controlling costs, particularly during challenging economic times, says Gerry So
Without a keen eye on your business outgoings, you can find your company in an uncompetitive situation with bloated overheads.
So how you can you manage your costs in a sustained fashion?
Keep Your Records Up to Date
No matter how busy you or your team are, it’s important to keep your paperwork and finances up to date on ideally a weekly, but at least a monthly basis. It’s not just about entering figures on to a spreadsheet, it’s about producing detailed reports to show your incomings and outgoings, profit and loss by line items (sales, direct expenses like materials and labour, and indirect expenses like rent, light and heating).
Think Like an Accountant
Detailed Review - Go through every single item on your profit and loss, no matter how small, on a quarterly basis and determine which items you can do without or where you feel you could negotiate better terms. Take actions or make adjustments as needed, especially when you notice that you’re spending more than you allocated. Areas that are important to your business’ revenue, such as production related expenses and marketing, should be among the last items to cut.
Analytical Review - This involves a month-on-month comparison of your profit and loss line items. Look for exceptions where it increases or decreases by a certain threshold, say 5%, and understand why and what caused the movement. This is a good exercise and helps you highlight any exceptional events that occurred during the month, for example increased labour and materials due to a one-off project.
Keep a Close Eye on Outstanding Items
A regular review of outstanding aged items, like customers and suppliers, can really help you manage your cashflow. If you use an accounting software, there are aged reports available, such as an aged debtors report showing you who hasn't paid. You can filter this information by the amount of days the payment is overdue, helping you focus down on where you’re falling short. Consider offering discounts to customers who often pay late, encouraging them to pay earlier, or start charging interest on late payments, to help you keep your business moving.
Know How Your Business is Performing
It might seem like common sense, but often when you speak to business owners who have ongoing project work, they often don’t know if the project will be profitable until it’s complete. It’s important to manage your costs in a timely manner and take immediate action when you’re close to breaking even or making a loss. Accounting software can help you to allocate costs like labour and materials against your revenue on a project by project basis. This way you know exactly how profitable each project will be and the margin you can expect to earn.
Of course, doing all of the above will take up a lot of your time, or even the employment of a qualified staff member. That’s where job management software can be so valuable as it can handle administration quickly and easily, giving you more time to grow your business.
By taking steps to manage your costs today, you’re protecting your business for tomorrow.
Gerry So is director of okappy