Do You Truly Know Your Business Costs?

Your company's profitability of course depends on your sales or revenue.  But there’s another factor as well – effective cost management.

Are you carefully considering the cost side of the business equation?

Analyze Your Cost Structure

Most likely, you can easily identify the products and/or services that are generating your greatest sales volume. But, on the flip side, can you identify all the costs associated with providing each product or service? Only when you know your true costs can you effectively allocate resources to the work that is most profitable for your company.

Actively Monitor Operations

As the owner of a small business, you are far too busy to be everywhere all the time. But it’s imperative for you to stay involved, regularly observing the day-to-day operations of your business and talking to your managers and employees. By staying visible and encouraging an open dialogue, you'll be in a better position to uncover costly problems before they seriously erode your company's bottom line.

Solicit Bids

Even if you are satisfied with a current vendor, it is still worthwhile to talk to the competition from time to time. You won't necessarily want to switch vendors simply because you are quoted a better price. But you may be able to use that price in negotiating more favorable terms from your existing supplier.

Watch for Discounts

In the interests of cash flow, your company may routinely pay its bills only when they come due. While this strategy generally makes sense, it may not be the best process if you are passing up generous cash discounts for earlier payment. In the current low interest rate environment, borrowing the funds you need to take advantage of discounts may be a better move. For example, suppose a vendor offers your company a 2% discount for paying a $10,000 invoice 20 days early. Passing up the discount will cost you $200. Instead, you might borrow $9,800 from your bank, pay the discounted invoice, and simply repay the loan in 20 days. If the rate on your bank line of credit is 8%, you'll owe about $45 of interest – for a net savings of $155 on just one invoice.

Effective cost management requires good information and careful planning. We can help make that happen for you.

Marc Schnoll | 02/12/2019