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Business Tip of the Month

Business Tip
of the Month
For the month of May 2003

Control costs all the time – even when business is good

During down economic cycles, there is often a passion for cutting costs in business. However, focusing attention on cost control all the time can be less painful and more productive. Your business will develop a culture of questioning cost increases and will find ways of maintaining low expenses.

Develop a budget. A first step in understanding and controlling costs is establishing a budget. What is a fair amount to budget for a department or event? Does it make sound financial sense to continue spending at historical levels? Once the budget is determined, based on input from everyone affected, spending above budget should be the exception, and such overruns should require explanation.

Know your costs. Typically, the big buckets of spending are people, materials, and production costs.

Control people costs.

  • To avoid layoffs in down cycles, be conservative in hiring all the time.

  • Consider how workloads can be shifted or reduced by eliminating tasks that don't add value to your product or service.

  • Cross-train employees so they know how to do more than just their specific tasks.

These steps will allow employees to produce higher quality work, keeping staff costs to a minimum and avoiding layoffs during slow periods.

Control material and production expenses.

  • Implement information systems that can accurately and clearly tell you what it costs to produce your product.

  • Establish what the budget should be for material and production costs, and stay within the budget.

  • Faithfully review weekly or monthly reports that track costs, and discuss any deviations from budgeted amounts with employees.

  • Reward employees for managing costs effectively.

Increase profit and minimize pain during a down cycle by controlling your costs all the time. For assistance in analyzing costs in your business, give us a call.

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