What is one cost-management challenge that business owners face? Give your best tip for overcoming the challenge.
In times of economic downturn, everyone looks to cut costs and manage inventory. There are some tried and true methods of cost management out there, but there are also some unique and creative methods to getting costs down to manageable levels.
Check out the 13 tips from business experts who have some insight on easing up on costs, and finding new ways to save businesses’ money for the long-term.
- Make Sure You Have Funds for End of Year Administrative Costs
- Overhaul Your Outdated Dashboard Reporting System
- Forecast Future Expenses and Revenue
- Apply Effective Cost Control Measures
- Don’t Compromise on Quality
- Take Care of Your Team
- Build a Collaborative Internal Framework
- Avoid Missed Savings Opportunities
- Focus on Building Relationships With Your Existing Customers
- Order Supplies on an as-Needed Basis
- Invest in Business Reporting Software
- Understand Your Fixed Costs
- Identify Expenses Not Related to Production Costs
Make Sure You Have Funds for End of Year Administrative Costs
The biggest cost management challenge that business owners face is having to put out money at the end of the year for administrative things that have no monetary return. These are things like inventory taxes, licenses for the new year, annual reports to the state, quarterly tax returns, labor department taxes, new health insurance premiums, and the like.
All of these things are required for business, but none provide any immediate monetary value like paying for inventory or marketing. The best way to overcome this challenge is to save up all year to pay for these things so you don’t have to take from your year-end profit or up your credit debt to pay for them.
Baruch Labunski, CEO, Rank Secure
Overhauling Your Outdated Dashboard Reporting System
The financial and cost-management framework of your business must be readily available to you in the form of a user-friendly dashboard. Your reporting system should give you an overview of your current business position and offer ready access to projections and forecasts. When this system is flawed or gives you inadequate or incorrect information, your cost-management strategy is bound to go haywire.
The right numbers and projections help you make the right decisions related to your cost-management strategy. To tackle the problem of an outdated financial dashboard, overhaul your reporting system and get on board an updated interface that gives you updated insights and information that help you keep an eye on your finances. With a new platform in place, you can plan your cost-management strategy more effectively and base it on accurate real-time information.
Riley Beam, Managing Attorney, Douglas R. Beam, P.A.
Forecast Future Expenses and Revenue
One cost-management challenge that business owners face is accurately forecasting future expenses and revenue. To overcome this challenge, business owners should create detailed budgets and track actual spending against those budgets. This will help them identify areas where they can save money and make more money in the future.
Aviad Faruz, CEO, FARUZO
Apply Effective Cost Control Measures
Applying cost control measures effectively is one common cost-management challenge. A business owner who obsesses over cost information and makes changes only based off the numbers comes off as a micromanager and anal retentive. When a business owner starts changing the budget, they should ideally involve the employees who work directly with the items being affected. They will have hands-on experience to relate and may even have ideas to contribute for savings too.
Gigi Ji, Head of Brand and Business Development, KOKOLU
Don’t Compromise on Quality
One of the biggest challenges business owners face is knowing how to keep costs down while still maintaining a high level of quality. I think the key to this is being able to identify what your most important expenses are, and then making sure you aren’t overspending on them. For example, if you’re paying for office space, it may not be worth it for you to pay for more space than you actually need—you can always use shared workspaces or smaller spaces that don’t require a large upfront cost.
In addition, I think it’s important to never stop looking for ways to cut costs without compromising on quality. You can find ways to do this by asking others in your field about how they do things differently (and more cheaply) than you do.
Shaun Connell, Founder, Writing Tips Institute
Take Care of Your Team
Small business owners who care for their teams always wish they could pay their employees more. For example, you see the effort put in every day, the good attitude, and the kindness between the team—it’s in our human nature to want to reward good behavior. If I could salary every one of my employees one million dollars annually, I would—but that’s unrealistic.
Patricio Paucar, Co-Founder + Chief Customer Officer, Navi
Build a Collaborative Internal Framework
You can set up an effective cost-management strategy for your business only when you consider every department’s financial requirements and plan accordingly. When there is a lack of collaboration in sharing this data, or in the absence of such a framework, the resulting strategy will only fall short. And without a comprehensive blueprint, drawing up a functional and efficient plan is impossible.
Since every function and department in your business dips into your financial resources, it’s vital that the cost-management strategy you devise acknowledges and reviews every detail. Set up an internal framework for ready collaboration so managers and employees can share their financial requirements and forecasts. Then, you must ensure that every department shares essential and updated information through this framework to help set up a functional and optimal cost-management structure.
Kris Harris, Owner, Nootka Saunas
Avoid Missed Savings Opportunities
As a business owner, it’s your responsibility to ensure that your company is profitable. To do that, you need to be aware of the various cost-management challenges you may face and have a plan to overcome them. Proper cash management is essential for any business owner who wants to stay afloat.
One of the biggest mistakes business owners make is failing to track their expenses and income, which can lead to missed opportunities for savings. Another common mistake is not having a plan for what to do when cash flow is low. To avoid these problems, set up a system for tracking your finances and create a cash flow forecast so you can anticipate issues before they arise.
Lukasz Zelezny, SEO Consultant, SEO Consultant London
Focus on Building Relationships With Your Existing Customers
I think the biggest cost-management challenge business owners face is in the area of customer acquisition. The cost of acquiring customers is a huge drain on the budget and can often lead to failure if you don’t have a steady flow of new customers. But most businesses don’t have a great way to get new customers consistently.
One of the best tips I can give in this area is to focus on building relationships with your existing customers. Ask them if they would refer your business to others, and then show them that you value their referrals by offering a special bonus or discount. This approach not only helps you develop a more loyal customer base, but also gives you the opportunity to build a list of people who are likely to become new customers.
Tiffany Homan, COO, Texas Divorce Laws
Order Supplies on an as-Needed Basis
One cost-management challenge that business owners face is controlling inventory levels. A tip for overcoming this challenge is to implement a ‘Just in Time’ inventory management system that will reduce waste by only ordering inventory on an as needed basis. For businesses where this kind of system can’t be applied, another way to overcome this challenge is to track inventory levels closely and create a system dedicated for supply reordering.
Anupama Jha, Operations Manager, Pure Jewels
Invest in Business Reporting Software
Reports are key for helping business owners understand their progress, profits, and spending. This way, they can manage their expenses more efficiently. However, lots of organizations still use traditional data analytic tools, aka spreadsheets. Although it’s true to say that spreadsheets can help in reporting business data, errors are almost always present in them. While to err is human, many errors are intolerable because they can then result in business executives making crucial decisions based on incorrect data.
Therefore, it helps if businesses invest in solutions such as business reporting software. Most of these intelligence tools come with pre-built templates that a business can customize as needed. By using this approach, data entry errors will be nonexistent, and more accurate statements about the business’s financial standing can be given to interested parties such as stakeholders. Also, the necessary changes can be made to avoid any extra business costs.
Mike Stuzzi, Founder, Mike Stuzzi
Understand Your Fixed Costs
One of the cost-management challenges faced by business owners is the challenge of maintaining a balance between their fixed and variable costs. Fixed costs are expenses that are not related to the number of units sold, such as rent, wages and salaries, and insurance. Variable costs are those that vary in direct proportion to sales volume, like raw materials.
One tip for overcoming this challenge is to make sure you have a good understanding of what your fixed costs are before you start any projects or hire new employees or make big investments in equipment. You can then use this information to figure out how much you can afford to spend on each new project without going over budget.
Amer Hasovic, Content Writer, Love & Lavender
Identify Expenses Not Related to Production Costs
The concept of “burn rate” is directly linked to the cash control problem. This term represents the speed at which the company is spending its money. The ideal, of course, is to have a low burn rate, since it means that the company has more time to achieve profitability. A high burn rate, on the other hand, can compromise the company’s survival.
A high burn rate is caused by underestimating the cost of goods sold, failing to control inventory, and overspending on marketing and advertising. To overcome this challenge, businesses need to identify all the expenses not related to production. You can then establish a monthly limit that will help you control spending and prevent the company from going bankrupt.
Neil Platt, Director, Emerald Home Improvements