Cost management has become an indispensable tool to achieve good profitability. A company’s cost analysis carried out by a reliable method of financial control is the path to maintain a profit.
Developing businesses struggle with their numbers in order to keep a good price on their products, pay suppliers and employees, and still make a profit. And this gets even more complicated when, for example, you do not have full knowledge of your operating costs.
But what is cost management? And how to carry out this cost management in your company? We will answer these questions below.
Cost Management – concepts
Objectively, cost management is the set of strategic actions that an organization uses to manage its finances in order to leverage its financial resources. For this purpose, you break down your costs, and what is needed to have your profit margin.
The secret for a good cost management is to know in depth the expenses that the company has in generating its product or service, and of course, to take note of the expenses needed to keep it operating. Because of this, many consultants begin their financial management processes by listing the fixed and variable costs.
Consider cost as the market value of a good or service, calculated from the capital and time spent in its production and the profit margin of its producer.
Fixed costs are the structural costs of a company: electricity, water supply, payroll, among others.
Variable costs are related to the profit margin, for example: value of the raw material, taxes, commissions and gratuities for employees, etc.
The entrepreneur needs to know this in depth, his business depends on it. Currently, many entrepreneurs use efficient resource management systems, as these allow them to visualize, practically and fully, the financial health of their company.
Performing assertive cost management
It is a mistake to think that performing cost management is just writing down information in the cash book – far from it. This management is analytical, and it is used to plan new investments that will guarantee the future of the company.
Therefore, knowing the expenses is crucial; however, the entrepreneur constantly needs to ask himself whether they are really necessary, or how to reduce them. Tied to the cost management, it is essential to have the ERP business management system. Having financial control directly affects the way in which your business is conducted.
Integrating a company’s administrative procedures will make cost management much easier. Currently, associating the seller’s work with stock operation is essential to keep up with the costs of a company. And this is not a big deal, as there are effective business management tools that support this integration and monitoring.
The advantages of cost management
Increasing profit and reducing costs, two points achieved with the full operation of their management. How is that possible? Well, by knowing the activities that most take away resources of a company. How about proposing a project to optimize them?
For example, through the figures shown in cost management software, you will have the data of the greatest villain of expenses in your company, and fighting it is what provides the increase in turnover. In addition, the cost analysis provides:
– Understanding of the market – how the values of products and services are changing in the competition;
– Customers’ habits – knowing the pace at which your customers buy, and what they buy, will help you put together a more competitive sales strategy;
– Create scenarios – the company can compare the months and design scenarios for the following year, for example;
– Accounting domain – there will be no errors when closing the company’s fiscal year, as the numbers are monitored throughout the period.
Cost management – right decision
The entrepreneur will have, above all, the control of the business when investing in cost management. Information is the basis of today’s business world, and not knowing your own company compromises success.
Using cost and business management tools, for example, will be more than positive measures to be taken. Doing so shows the need to better understand how the business works and what to expect from the future. Therefore, putting together the best strategy to manage the finances of your company will give it new energy and more space in the market.
Written By Gabriela (GestãoClick)