Cost management is the smart management of any company’s expenses. Without a job well done, it is not possible to optimize costs, nor to identify opportunities that increase profit, reduce unnecessary expenses. Their task, therefore, is to make each decision more and more strategic within organizations.
For those who manage a company, it is nothing new to face challenges and have certain “headaches” in their daily lives.
These are the pains of those who undertake and intend to make a difference. However, it is not uncommon to not be in control of the entire operation. Then a yellow light comes on.
Cost management within companies is one of the main tasks that any manager has – and you know it very well.
Managing and controlling expenses well is a strategic issue for your business. A job well done will keep the company not only viable.
It will give a paved path to be followed in order to reduce unnecessary costs and, even better: maximize profits.
But, how is this possible? How do you optimize costs and ensure smooth financial health for your business?
We will talk about this from now on, giving you some tips and actions that you can put into practice in your company.
Stay with us.
First of all: what is cost management?
Basically and directly, cost management is the correct management of expenses that a company has. Regardless of whether it is a lot of expenses or not, all companies have it, right?
Any manager wants to make his business not only sound but also pave the way for continued growth.
But it is not always easy to organize everything you spend. And then the difficulties begin to appear.
Without having the precise information at hand, making an assertive decision is more difficult. And things start to get complicated …
Efficient cost management allows companies to identify opportunities: not only for investment but also for cost reduction.
In order to consider the expenses that the company has and do this expenditure management correctly, it is necessary to take all costs into account.
Especially because, basically all investments that an organization makes are considered costs. So, don’t ignore:
- product or service creation;
- expenditure on inputs;
- employee payroll;
- rent, electricity, water, transportation, among many others.
Especially because, without knowing all these costs, how to calculate your profit margin. And if you don’t know how much profit, how will you know how much you need to sell monthly?
It is possible that you will have even more losses. After all, without proper financial management, you compromise the sales management of your business.
What is the objective of cost management?
Cost management is and always will be a strategic tool for the company’s administrative management. After all, it brings a series of rich and detailed information about the operation.
Performing it in an incomplete way can cause immediate losses and reflect on the drop in sales, productivity and affect the sales process completely.
Therefore, doing the cost management correctly helps companies to:
- have accurate and complete information on the performance and performance of various operations;
- assists to control, plan and develop any activities;
- provides all kinds of insight for more accurate, data-based decisions.
Another objective of doing an efficient job is to be able to price what your company sells.
You see which products or services have the most added value and which can be sold at a higher price and which can be cheaper.
The benefits of correct cost management
Good spending management goes far beyond increasing revenue. Of course, this is an immediate benefit, but there is much more to reap when this task is done well.
Balance is fundamental to anything in our lives. When we talk about a company’s finances, that remains true.
Finding the so-called break even – the point of financial balance in organizations – is essential and always will be.
Knowing what and how much to get in and out of makes everyday life safer. And investing in an improvement or taking advantage of a market share are not impossible tasks to perform.
For this reason, we have separated some benefits of correct cost management within companies.
Fall in spending
If you carry out a close inspection and detail everything you spend, then it will be possible to intelligently see waste.
It is as we have said in the entire text so far: you will have much more accurate data to make decisions. Therefore, you will know exactly what can be cut and / or optimized.
So, spend only what is essential to keep your company’s operations up to date without, of course, limiting productive capacity.
Less risk to the business
With accurate accounts, knowing how much you enter and especially how much you leave, you reduce the risks of your business simply becoming unviable to maintain.
But by making inputs, raw materials and fixed costs cheaper, you start to have more cash on hand to optimize business management.
In addition, it can be strategic and focus efforts and resources on sectors that are vital today and that need special attention.
Higher quality products and services
By reducing unnecessary costs, the manager is able to reallocate costs to make the developed product or service better.
Say your company is SaaS. And, after identifying unnecessary expenses and cutting them, you can invest in cutting edge equipment.
This will undoubtedly make a new feature, for example, come out with a much higher quality – which will be reflected in the customer’s success with your tool.
With better products and services, you can be more competitive in the market. You will not need to “sell lunch to pay for dinner” and will be able to innovate continuously.
In addition, it will help – as we mentioned earlier – in pricing. And if you are managing your costs well, you can put a more competitive price in relation to competitors.
You reduce costs, direct investments, place a competitive price and manage to sell more and better.
What does this all generate? Higher profit, of course. One action has and will always influence others. And when you do the correct cost management, you trigger this chain reaction.
Good practices in cost management
Undertaking the correct management of costs undoubtedly contributes decisively to a much better working environment and organizational climate.
In order not to propose impractical prices that threaten the company’s profit, it is necessary to understand some of the pillars of cost management:
- Control – nothing can be left out. Fixed and variable costs, however small, must always be accounted for;
- Record – data collection must be rigorous and careful. A wrong number can decisively compromise the entire operation of the company;
- balance – look for the best cost-benefits in all sectors without giving up quality.
A good practice at this point is to use SWOT Analysis.
You survey your business costs and understand how it relates to aspects of your business,
That is, you understand how a budget that is in location A can, when going to location B, yield more fruits for the organization.
This will help managers to be clear about which paths to follow. Have a clear picture of what expenditures are above what is necessary.
Of course, the closer the management is. That is, the more you are immersed in your daily life, the faster you will be able to identify waste, for example.
The cliché “time is money” is true. And so, the sooner you identify defects, the quicker you will act to fix them.
The most common mistakes in cost management
Knowing how to manage costs well also means understanding what are the most common mistakes that generate losses for companies.
We mention some of the most common mistakes that may be happening today in the management of your business.
Therefore, pay attention to the following items:
Fail to calculate cost and selling price of services or products
The sale price of the product or service can never be lower than the cost to produce it. This is a mistake that will inevitably lead any business to ruin.
Likewise, matching prices will make any growth in your business unfeasible. The famous “oxo” will get you nowhere – although it avoids damage.
The key is to know how much you spend to get to know how much you can charge to start making a profit.
Do not measure company profit or loss in real time
The faster you see the numbers, the more agile you make decisions to improve them.
Companies that are unable to measure profit or loss in real time have difficulties in managing their costs well.
This is dangerous and can deteriorate the economic health of your business. Not automating processes goes against the best management practices.
Do not consider stock losses
Inventory losses need to be considered as cost. To neglect this is to have inaccurate numbers.
If any product is damaged by poor storage, for example, and needs to be disposed of, you consider it an expense;
The ideal, obviously, is to make a good inventory management so that this does not happen.
But, if you need to invest in storage, start managing costs initially to see where you have money left over for that investment.
Stop investing in technology
Digital transformation in all areas of the company is an essential factor. Managing costs is no different.
Managing a company in the “traditional” way no longer guarantees the viability of a business – which will say competitiveness.
Routine demands a lot from all of us and, therefore, technology plays an important role and cannot be ignored by companies.
Tools such as an ERP help the financial management of any organization and need to be present.
Having sales control is equally important and the technology that a CRM brings must be inserted into the sales routine.
In this way, you are able to have not only the cost management of your business, but total control of the operation.
Which will automatically optimize your spending and ensure that you are more productive and competitive in your business.
So, how can we help you?
If you were in doubt about the article or want to know more about the technology to manage costs in your company, talk to a consultant.
Enjoy and read two articles that will help you to have processes always optimized and that help you to better manage your expenses on a daily basis.
The second addresses how the kanban model organizes processes and makes the routine more productive.
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