Ramping up sales is often a business’ top concern, and for good reason. But there’s a lot to be gained from controlling costs.
“It is relatively easier to control and reduce costs than to increase sales,” says Omar Khan, principal consultant at Procurement Solutions Group, a Southern California firm that helps provide cost-reduction strategies to businesses. “Additionally, while increasing sales requires more capital and labor, controlling or reducing costs does not require those resources.”
The majority of businesses believe that controlling expenses impacts their success, according to a SunTrust nationwide survey conducted in July 2014. However, about half of businesses are at least somewhat challenged or stressed by controlling their expenses, and about one-in-10 is extremely challenged or stressed, according to the findings.
If you are looking for ways to manage your costs, consider focusing on alignment, inventory and information technology.
Align the vision
Midsized businesses are in a unique and potentially difficult alignment position, says Iqbal Ashraf, CEO of Mentors Guild, a marketplace for business consulting services.
Alignment is naturally built into smaller businesses with few employees. Meanwhile, larger corporations can pay for specialists to monitor business functions. But in a midsized business, there might be some disconnect between the owner’s primary business objectives and lower-level employees’ output.
If a retail company’s owner wants to focus on profit margin, for example, but the sales staff is focused on sales volume, there’s a real chance the company won’t meet its goals. Those objectives will be missed, even if the employees are working to their full potential. And that’s costly.
For companies to become more efficient, Ashraf says the owner’s goals must be transferred to the entire staff. This can be done by first making organizational goals, and then dividing those goals so they trickle down the hierarchy. The key is to keep goals objective, clearly defined and measurable at every level, so they can be easily communicated across departments.
Transfer the inventory burden
“By far, the largest amount of any company’s cash is tied up in its inventory,” Khan says. “Some argue that inventory is a necessary evil, but I believe it also offers the biggest opportunity for cost control.”
Look to what companies such as Toyota and other Japanese companies did in the early 1950s, Khan says. By using strategies like “Just in Time” or “Vendor Managed Inventory,” they cut down costs, in part, by putting some of the cost back on suppliers through blanket purchase orders and supplier contracts with staggered deliveries.
This approach can help reduce the costs associated with warehouse space, utilities and the employees required to maintain inventory.
Utilize cloud technologies
“IT systems alone cost huge amounts in personnel, utilities and equipment,” Khan says. “A company’s entire technology requirement, or parts thereof, can be handled by moving to cloud-based services at a fraction of the cost.”
Cloud-based services have expanded in recent years to offer everything from email and data storage to client-relationship management and project management.
In addition to cutting costs, cloud-based services give owners the ability to collaborate on files virtually anywhere and offer automatic file syncing, which might give business owners a little peace of mind—something you might not be able to put a price on.
By focusing on costs that are in your control, you can trim excess, find efficiencies and improve profitability.