Costs affect business profit
PROFIT = INCOME – EXPENSES
And therefore it has also been liquidity since we must pay the costs at some point.
The survival of companies sometimes depends on Reduce costs. If you do not have the courage to do so, the company could have significant future problems. Perhaps we are afraid to change things due to the inertia that they have always been that way, but we have to let go of past conditioning and think with a blank page.
In the month of December, when many of us are working on next year's budgets, it is time to rethink how we would like everything to be if we started the company today, without past burdens that correspond to expense and income structures of other times, and on that basis make our projections for 2021.
Once we have identified what is making us spend without generating a return, we have no choice but to rethink it..
Cost reduction is normally not a popular measure because it is associated with giving up or removing privileges that until now had been had, even dispensing with staff, but I assure you that costs can be reduced in a different way, to “win, without losing anything in return.”
How to make your business as profitable as possible?
Since you don't learn by listening but by reflecting on what you hear, I ask you 7 questions that I hope will lead you to think about how to make your company more profitable, by reducing costs.
- How many times have you felt that you were doing things that did not contribute or report to anyone and you continued doing them out of mere routine, or because you did not dare to change?
“IF YOU ARE CLEAR, STOP DOING IT”
We must see the company as a series of processes that are concatenated. It identifies inter-relationships between sections, departments and workflows, and in these links it detects duplications that can be eliminated and areas for improvement.
The first key to reducing costs judiciously is to think about processes that do not add value, in unnecessary bureaucracy that only complicates our existence
- Have you discovered identical jobs that are being carried out in different areas or departments, doing things double, triple...?
“IF YOU HAVE IDENTIFIED IT, RE-DEFINE”
We are at the time of beginning to prepare the 2021 budgets, and therefore, it is time to put the basis for future savings. When budgetingIn many cases, we limit ourselves to taking what we spent last year, multiplying it by a number and with that we decide what we will spend next year. But this is not the way, but to question the use and return of each euro and see if it is really useful to continue doing so.
- Since when have you not updated the inventory of your company's warehouses, identifying and deregistering what is obsolete and reviewing its management?
“IF YOUR WAREHOUSE IS A DISASTER, GET ORDER”
Stock and its management can be a very heavy burden and will be even more so if we are financing these goods with external resources. Plan, reduce and improve inventory control will mean a significant reduction in financial and non-financial costs
- Does the preparation of the budget become a cockfight where no one is willing to eat less of the pie than the previous year, and their colleague in the office?
“IF YOU ARE GOING TO BUDGET, QUESTION EVERY CENT”
The whole is the sum of many few. For improve your profitability, try to make small savings and you will see how the effect on overall results is spectacular. Benjamin Franklin said: “Take care of small expenses, because a small hole can sink a ship.”
- Have you ever added up the weight of insignificant expenses, analyzed the effect on overall profitability?
“IF YOU FEEL THAT IT MAY BE TRUE, ACT ON THE FEW”
Mentalize the team need to reduce costs, be transparent about the company's situation, ask them for help to identify where you should cut back. A company is too heavy a ship to try to carry alone and everyone must row in the same direction. You don't have to win, but rather convince that you have to take action in the fight against waste.
- Do you feel that the leader's loneliness prevents you from implementing the spending restriction measures that you are convinced your company needs?
“IF YOU FEEL ALONE, SHARE WITH YOUR PEOPLE”
Before cutting back, renegotiate with your suppliers and group all purchases of the same nature into a single supplier, in order to achieve discounts for volume purchases. Save by planning and reducing items in non-strategic expenses that occur constantly and we do not give importance such as: stationery, messaging, travel, cleaning, etc. And while we're talking, don't forget the bank, which is another supplier that supplies us with money; Financial costs and bank commissions are also susceptible to re-negotiation.
- Are you clear about the agreements that exist on current and financial expenses and the effect that reviewing them would have?
“IF YOU HAVEN'T RENEGOTIATED IN A LONG TIME, YOU ARE LOSING MONEY”
Advantages of reducing costs
In our homes, when we have a savings culture, it gives us great satisfaction to break “the piggy bank” and see what we have generated thanks to our good sense. The same will happen in companies when we quantify the impact on the income statement of the cost reduction and control measures.
We are not talking about being miserable, but about the rational use of resources seeking effectiveness, efficiency and effectiveness in order to obtain the desired results with the best possible use of resources.
Perhaps it is not necessary to make great revolutions reducing costs if we achieve:
- Manage with quality information relying on integrated management systems.
- act as soon let's detect inefficiency.
- Implement order optimizing processes.
- Train and mentalize the team that each of their actions must generate value and that all expenses must have a positive return. Turning each person on the team into managers of their area of responsibility.
- And having in the DNA of the organization that the path is “continuous improvement”, therefore, we must constantly question whether we have chosen the best route To do the things.
IF YOU ALREADY KNOW WHAT NEEDS TO BE DONE AND YOU DON'T DO IT, THEN YOU ARE WORSE THAN BEFORE” Confucius.
All plans are meaningless if action is not subsequently taken and there is control where compliance with the established plans is monitored. Useless design and implement brilliant actions of cost reduction and then they remain mere pieces of paper in a drawer.
Educate and raise awareness about spending control It implies “being on top” until creating the habit of saving and not wasting, so that it is the guideline for all the people with whom we collaborate.
Now, more than ever in times of pandemic, when income has been significantly reduced for many companies and there is uncertainty about the future, it is time to exhaustively analyze our expenses and have an ant culture, rethinking past cost structures and rebuilding them based on the circumstances of the current complex environment. In many cases this disbursement reduction exercise It can be vital to our survival.
And to conclude, I will ask you questions that will help you make decisions to reduce costs.
When talking about reducing costs we are talking about ensuring the survival of the company because as the wise Benjamin Franklin said:
«"He who buys what is superfluous will soon be forced to sell what is necessary."
Analyzing all these concepts and decisions is part of the task of a Financial Director. You can train with him Master in Financial Management, Accounting and Management Control. You will become a professional in this field by acquiring knowledge about innovative techniques and concepts in finance.