cost control strategies

Cost Control Strategies

Staying profitable means running your business as lean as possible. One way to maintain your margins is to raise prices; however, the market will dictate how high you can go. You need to stay competitive, and controlling costs is a more manageable and sustainable strategy.

Running a profitable business requires making hard decisions. You might have to make a few sacrifices upfront, but ultimately, it will be well worth it.

Cost Control Within Your Team

As a business owner, you need a solid team around you to execute the mission. Having the right people in the right seats doing the right things is critical. For example, your highest-paid employees should not be doing entry-level work—nor should you, for that matter.

If you need administrative help only some of the time, consider outsourcing on a project-by-project basis. That way, you can attach the costs to a specific task and place a billable dollar value on it.

 

What’s Your Break-Even Margin?break even

Knowing your break-even margin is essential to business planning. Shown as a ratio, your break-even margin tells you your gross margin factor to reach a break-even state. You’ll need to consider the true cost of your product or service, and that includes all the materials, labor, and overhead associated with it.

The formula for calculating the break-even margin ratio is:

 

Total expenses ÷ net revenues (x 100 to get a percentage).

 

Eliminate Products That Are Not Profitable

With a good understanding of your costs, it’s a simple task to identify where you might be able to reduce costs and increase your margin. It will also highlight underperforming products or items that can’t be sold at a profit.

Eliminating such products will, in part, eliminate the need for additional labor, storage costs, and insurance. It will also improve your cash flow as you’ll have fewer resources tied up in inventory.

 

Purchase In Bulk Where PossibleInventory

Take advantage of bulk buying or leverage discounts on payment terms when possible. Purchasing in bulk reduces your cost-per-unit, but be sure what you do purchase in bulk is something that you’ll move through quickly. If you run out of space to store bulk items or if the item is seasonal, a bulk purchase might not be the best idea.

 

Set A Schedule For Equipment Replacement

Equipment maintenance tends to increase quickly as equipment ages. Setting a replacement schedule allows you to recoup some of the cost on the open market before the item loses value.

Identify and eliminate idle equipment promptly. If it is not moving, it is not making money!

 

Outsource Professional Services

You might occasionally need the services of an accountant, a CFO, or an SEO professional, but having any of these roles on payroll full-time might not make sense. Outsourcing your bookkeeping and payroll tasks or hiring a fractional CFO when needed provides the expertise you need when you need it, without a high-salaried payroll burden.

To learn more about how we help you reduce costs and become more profitable, schedule a complimentary consultation today.

NEED ASSISTANCE IN COST CONTROL STRATEGIES? TALK TO ONE OF OUR VIRUTAL CFOS TODAY!

additional resources:

audit pbc list

Audit PBC List

Audit PBC List Auditors, like most financial professionals, are overrun by acronyms. They’ll have no shortage of abbreviations and shortcuts as they subject your ledger

Read More »
selling a business

Selling a company

How to Prepare Your Company for Sale You’ve spent years building a small business from the ground up. Now it’s time to retire, sit back,

Read More »