Looking to get a handle on your small business cost control?
It doesn’t matter if your small business consists of selling Chanel handbags from your kitchen table or writing short stories and novels for Amazon Kindle KDP.
You need to keep costs under control, or you will soon see that your financial future is painted in red. Bright red.
While these small business ventures require relatively low start-up costs (just a few thousand dollars), the costs of advertising, branding, website design, influencing, and more can really add up. Also, you’ll find that you’re working so hard almost every day of the week that it will be easy to lose track of your expenditures. And that’s before you even consider the tax implications of your small business.
Outsourced Accounting Services
This is where outsourced accounting can save you both money and headaches. Says the professionals at Outsourced Accountants, Washington, DC, your accounting firm should do more than just balance your books. It should also come up with insight and actions that can impact your organization’s profitability and improve its operations. Managing accounts payables and accounts receivables is of the utmost importance, but so is creative thinking when it comes to cutting unnecessary costs.
Cost-Cutting Measures
That said, what are some other cost-cutting measures that can keep your small business in the green? Bright green. According to a recent report by The Motley Fool’s The Ascent, unlike simply cutting costs, cost control is engineered as a targeted action that can rein in everyday expenditures while boosting profits. If you’re a small businessperson, it’s critically important that you learn all about cost control and how it differs from cost management.
Defining Cost Control
Naturally, you can expect to have baseline expenses. You are responsible for controlling these costs monthly. For example, you need to plan for paying your monthly mortgage payment or your rent. That same theory applies to your small business. Cost controls are engineered to establish a baseline measurement that can be used to calculate real expenses versus planned expenses. In other words, you need to know how much it costs you just to turn the lights on in your business every working day.
By budgeting expenses for producing a product or service, you are estimating how much it’s going to cost to create and deliver that item or service to your customers. You can then measure your actual or real costs against your budget to determine how close you are to the baseline. Depending on how close you are, you can make necessary adjustments accordingly.
One of the best ways to do this is by using sophisticated accounting software, or you can hire a reputable accountant.
Cost Management vs. Cost Control
Says The Ascent, cost control, and cost management are all too often utilized interchangeably despite their being two different aspects of your business finances. At base, cost management is concerned with budgeting and planning, while cost control deals with the real costs along with the actions taken because of those costs.
For instance, if you are preparing your small business budget for the upcoming year, you utilize cost management tools to produce it. You begin by creating a solid plan that will include the services or products you wish to sell and the methods you will be choosing to deliver them to your customers and potential customers. When you are planning, you need to include financial projections, which will become an integral part of your overall budget.
Once that’s done, you will need to estimate the related costs of the processes and then use the estimates to create your budget. This is where cost control comes in handy since it can measure actual costs against estimated costs. If you utilize cost control effectively, you can reduce those pesky unexpected costs more effectively.
Here are some ways to better control your small business costs.
Pay Attention to The Numbers
If you run your financial statement at the end of the month and find that your net profit is smaller than expected, you need to find out where the numbers went wrong. Ask yourself, are your fixed costs higher than your original estimates? Did your supplier increase their pricing? Are you paying twice what you estimated on social media advertising?
Another thing to consider is making payments, especially if you need to send money to a different country. So whether that is needing to send money to Bangladesh, the USA, or even looking to convert funds into different currencies, looking at your options are a great way to ensure you do the right thing.
Identify where you went wrong by estimating your costs and fix it.
Prepare Your Budgets Accurately
It’s said that the best way to implement both cost control and cost management is to create an accurate budget. Make sure your budget isn’t just a guesstimate but something that utilizes real or accurate numbers. If this doesn’t work for you, consider going with a “zero-based budget.” This allows you to start from scratch, meaning you will need to justify each expense prior to putting it into your budget.
Be a Better Manager of Your Projects
If you’re hosting your first business event for the year, you can make certain your estimated costs stay in line with actual costs. While you can measure actual costs against planned costs after the event is over, it’s better to measure your expenditures in real-time. This way, you won’t be exceeding your planned budget by thousands of dollars you don’t have.
Conclusion: Mastering Small Business Cost Control
Owning your own small business can be exciting and profitable. But to make it work, you need to stay in the green. Bright green. This means learning the difference between cost control and cost management. It also means hiring the right accountant.
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