Cost Control – “A budgeted cost is certain, budgeted income is uncertain”. These were the wise words shared with me early in my career, and they ring true today whether I’m putting together a budget or business plan.
While of course a business needs to invest in its future, the speed and timing of that investment needs to be very carefully thought through. It can be very easy for a business owner to sign off on expenditure in the belief that it will reap dividends in terms of additional sales and revenue, but the following should always be carefully considered:
• How confident are we that the anticipated extra revenue will materialise as a result of the spend?
• Is the spend required to generate the anticipated uplift in sales, or could this be achieved in a more cost efficient way?
• If the spend is fully justified, have we ensured that we are purchasing on the best terms?
• How flexible is the spend? If the extra spend does not have a positive impact on sales, how easy will it be to remove that cost moving forward?
As well as challenging any new spend, a business owner should also have a process in place to review all regular spend, in particular:
• Ensure all recurring annual costs are examined each year to ensure that the business is getting the best value for money e.g. maintenance contracts, utilities and insurance. It is all too easy for relationships with suppliers to become ‘cosy’ and a small amount of time invested in examining the market could drive significant cost savings.
• Discretionary or non-essential spend should be regularly reviewed e.g. subscriptions and business entertainment. Where no tangible business benefit can be identified these should be considered for termination
In the search for growth and exploring new sales opportunities, careful management of the cost base is often overlooked. To quote another old phrase, “Sales for vanity, profit for sanity.”