Many business owners, particularly small business owners, have an array of responsibilities. From ordering supplies and making coffee, to meeting with investors and monitoring costs, small business owners wear many hats on a daily basis.
One of our client’s biggest challenges is developing cost management strategies. When every night, and every morning starts with a to-do list for the day it’s hard to monitor “cost creep.” Small businesses may have a dedicated bookkeeper entering data, but they don’t typically have the time or background to analyze information and understand when and where your costs are rising. However, business owners often struggle with the battle of hiring a full time Controller and/or CFO to manage both fixed and variable expenses, vs. taking on the responsibility themselves.
As the world continues to evolve to more of an outsourced service mentality there is another option. You can leverage the support of Controller and/or CFO level support without the price tag of an in-house executive. Outsourced Controller and/or CFO services are often delivered by professionals with years of experience who hold the CPA credential. These professionals can provide you with irreplaceable insight on growing and managing your business.
If you are still in the midst of determining the best strategy for your business, outlined below are strategies to begin to implement, to help develop more effective Cost Management measures.
- Technology can help to simplify. Generally small and early phase companies have budget and staff restrictions, while still trying to manage the daily “to-do” list. Advancements in technology have provided for a streamlined and automated approach often putting small and large businesses in the same arena. Technology has allowed for a decrease in dedicated employees and cost. For example, if you are in the early stages consider hiring a “virtual” assistant, or allowing machines to complete basic tasks. Implementing technology for basic everyday tasks saves money and allows for high level management to focus on strategy and the growth of the business.
Technology can also help you automate expense controls. Expense tracking tools such as online banking, and other expense tracking apps, allow you to set authorization and spending limits. Technology can also help you to understand expenses real time through alerts and reminders surrounding certain cost control measures.
- Look for ways to reduce variable and fixed costs.
Business growth does not have to mean that your variable costs (costs directly related to business activity) increase at the same rate. Focus on gaining margin without sacrificing quality. Some ways to do this include volume discounts, analyzing multiple vendors, analyze expenses and see how they provide value to your business, monitor costs regularly, look into technology to reduce labor costs (as mentioned above), and centralize purchasing. Sometimes is may make sense to “re-work” your product. This is a fine line as you do not want to sacrifice quality to save money in the short-term.
In his book, “Mining the Numbers for Gold – How to Manage Profit and Cash Flow,” author John Tracy states, “fixed expenses are like the old joke about hell: It’s easy to get into, but very hard to get out.” Don’t become content with your fixed costs. There are always opportunities to look for ways your company can save. Consolidate operations, think about moving operations to cheaper locations, outsource services, use shared office space, energy consumption, justify fixed expenses with data not gut feelings and wishful thinking, always use a budget, and know how much cash you have on hand, and project cash on hand annually.
Whenever possible makes expenses variable vs. fixed – i.e. performance based compensation vs. guaranteed payments.
- Outsource. Today outsourcing has become a normal way for businesses to operate. With the rise of the internet and technology, this allows small businesses to gain a competitive edge over their larger competitors. Before you outsource any piece of your business you need to make sure that you have a set goal in mind as to what you need to accomplish through outsourcing. Some of the main business functions that are outsourced include finance, graphic design, payroll and IT. A few of the ways outsourcing can benefit your business include access to skilled expertise at a lower cost, the ability to mitigate risk, and better customer management.
Outsourcing Controller / CFO Services allows businesses the ability to create a strategy, by leveraging the expertise of an experienced professional, around areas such as expense management, cash flow, labor costs and debt. As a small business and/or start-up company you may not know your exact financial needs from day one. Outsourcing allows you to pay for the help you need, when you need it.