Keeping control of costs is a common issue for soloists and microbusiness owners. As with everything, balance is important.
The key to controlling costs is to break them into three categories: goods sold, fixed costs and variable (or operating) costs.
Costs of Goods Sold
Broadly speaking, these are the costs that directly relate to producing what you sell. For example, a restaurant would include all food and drink. However, for service-based small businesses where your product is based on time; your costs of labour are really your own cost.
How to control your Costs of Goods Sold
- Meet with suppliers on a regular basis to check out possible specials and discounts.
- Don’t get too comfortable with your current suppliers.
- Minimise wastage via better internal business practices.
- Don’t overstock. Overstocking can lead to your products expiring on the shelf and/or higher storage and refrigeration costs.
Fixed Costs
Fixed costs relate to expenses your business has, just by existing.
How to control Fixed Costs
- Minimise rent. Carefully research and plan rental sites for suitability of location, size and future potential.
- Finance costs of buying your business or equipment carefully. These items need to be paid for whether or not they’re producing anything.
- Build a strong team of staff who cover the key areas of your business.
- Shop around for banking options, there are many to choose from.
Variable Costs
As the name suggests, variable costs are the ones that vary with your production output. It’s these costs that you need to be regularly vigilant about.
Want more articles like this? Check out the financial management section.
How to control Variable Costs
- Your staffing costs are going to be the one variable expense you have the most control over. To minimise wage costs, prepare a regular roster based on forecast business activity to prevent over staffing.
- Keep an eye on your energy expenses. Take advantage of competition between energy suppliers and choose the one that provides the best value for your needs. Also, use energy-efficient appliances and lights, they may cost more initially, but will save you more in the long run.
- Shop around and get fresh insurance quotes each year.
- Conduct proper planning before signing off on a franchise agreement. Franchise fees are a variable expense that can impact significantly on your franchised business.
Driving increased sales without focusing on the cost can see your business go backward financially. The opposite also applies, if you cut costs aggressively this can lead to an inability to service existing customers and win new ones. Apply a balanced approach to achieve the best overall outcome.
How do you cut costs in your business?