Keeping your company’s costs down is a great advantage in business. However, in a volatile and competitive market, businessmen need to find the best strategies to reduce costs and optimize management processes.
Controlling your costs has become a priority as important as increasing your company’s revenues. This is why performing an internal evaluation of expenses and understanding how your processes function is the best path to identifying unnecessary costs and establishing an efficient program that will offer sustained benefits for your business.
Reducing costs means obtaining more flexibility to take advantage of market opportunities. Thus, it’s essential to make investments and reap the benefits of this endeavor. However, we do recognize that diminishing expenses is a big challenge, which is why we’ve selected a few tips to help you on your way. Take a look!
1. Measure your costs
Before you create an action plan to reduce your costs, you need to make an evaluation of your company’s expenses. Once you’ve gathered this data, make a detailed analysis of your expenses from the most relevant (or the largest) to the least relevant. This analysis will allow you to identify many “hidden” costs that are certainly affecting your company’s results.
Knowing every expense is essential to coming up with possible solutions. Besides, by going through this exercise, you’ll be able to measure your main expenses and identify those that are unnecessary, or in other words, those that don’t add value to your company. Remember that it’s impossible to manage what you haven’t measured.
2. Make short-term, medium-term and long-term analyses
To take assertive control of your expenses and reduce costs, it’s important to visualize your reductions over the short-term, the medium-term and the long-term. To do this, evaluate alternatives that will reduce your costs over a longer timeframe. This way your company will not risk basing its results only on the short-term, which won’t last very long. A study conducted by McKinsey shows that only 10% of cost reduction projects were successful 3 years after their implementation.
3. Improve process management
Just evaluating your accounts or cost centers isn’t enough to identify possible bottlenecks or problems with your company’s processes. That’s why your need to think about your processes, because many new opportunities will be revealed such as work that’s being redone, duplication, and various processes or activities that provide little value to your company and your clients.
4. Renegotiate or rethink contracts
Negotiating with your creditors can be a viable alternative in trying to control your costs. This is a good reason to make agreements with your suppliers and seek lower bank charges, because with lower interest rates you can make your payments without great financial consequences.
In addition to this, rethinking contracts and researching the market to find out what’s available from other suppliers is a strategy that can also offer large savings for your business.
5. Automate cost management
ERPs are solutions that allow you to integrate all of your company’s data, but they don’t help you in the efficient management of costs, especially when we want to understand the impact of indirect costs on our products and services. They also don’t provide simple ways of modeling a company’s profitability per client, channel or region – which are so fundamental these days.
Given these needs, companies like MyABCM offer advanced tools for cost, profit and performance management using software specifically designed for this purpose. With over twenty years in the market, MyABCM is already being used in over forty countries – and can be totally integrated with any company ERP or internal system.
Reducing company costs is the best decision, especially in a market that’s this volatile and selective.