The crisis that has afflicted this country’s economy has affected the profits of many companies. In such an uncertain scenario, good managers need to reevaluate their businesses and seek to survive this time of turbulence while maintaining their company’s health.
Increasing profits by reducing costs is essential to this process. However, it needs to be done in a planned and organized fashion.
Reducing costs doesn’t simply mean cutting spending in a haphazard manner. You need to understand the nature of each cost and its relationship to your company’s sales and profits.
Thus, we’ve written this post to offer tips on how to cut costs in an intelligent manner and also increase your business’s profits. Read on!
Establish goals
Identify all your costs and expenses for at least the last six months. After careful analysis, establish reduction goals for each item. This is known as cost forecasting, and should be done monthly.
In addition, you should keep track of costs regularly, comparing your forecast with what was effectively spent month by month, verifying if your goal is being achieved. If it isn’t, you should analyze what could be impeding the realization of your goals.
Be careful with false impressions
A large sales volume doesn’t necessarily mean large profits. Often increased sales give an image of prosperity, while behind the scenes expenses are consuming all the profits.
To get real results, spending has to be used in an efficient manner. This can be achieved by increasing your average ticket (the customer’s average purchase), optimizing the ROI (return on investment) of your campaigns, and improving your procedures and internal methods.
Analyze your costs in percentage terms
In analyzing your costs, use percentages instead of quantities of money. It’s good to do this because if your sales increase but a cost remains constant, this cost now represents a smaller percentage of your sales volume. And when you diminish your cost percentage, you’re increasing your profits.
On the other hand, if your sales volume remains constant, you can increase profits by reducing the cost of a specific item. This way you can strive for two goals: diminishing specific expenses and increasing productivity at the same time.
Use a reliable system
Before you determine whether a cut in spending will increase your company’s profits, you need reliable information about your operations. This data can be obtained from a system which offers strategic management of your company’s costs, profitability and performance and is integrated with your company’s existing systems.
With this solution, you’ll have access to basic and complex graphic analyses, and the ability to execute advanced simulations for possible economic scenarios. This is important in preparing monthly reports, budgets and evaluations of your operations.
Did you like our tips? Are you ready to reevaluate your business and reduce costs? Leave a comment and share with us the difficulties you have confronted in managing your company’s costs.
Qualified professionals, technological tools, a good work structure and efficient financial management: these are some of the factors that determine whether a company develops and makes a name for itself in the market.
However, in order for all of this to happen in accordance with your company’s strategic planning, attention needs to be paid to other administrative factors such as performance management – which is considered an essential point among current managerial practices.
To get a better understanding of performance management and to get a better idea of how to apply it to your company, take a look at this post’s tips!
Performance management has arisen as an alternative to the traditional techniques that have been used to compare desired results with achieved results. Traditional models only consider the work that was previously planned. Current models, however, allow for corrections to reflect what was necessary in practice– which can generate greater efficiency in various company functions.
This process is based on the idea that one has to share a company’s objectives with its employees, thus offering the necessary mechanisms to improve performance – as well as motivating them to complete their daily tasks. To do this, one has to define strategic goals, define roles, and define individual goals for every employee, as well as offer mechanisms that will enable them to work while keeping track of their own performance.
In general, we can divide performance management into two fronts. The first front focuses on your company, or better, on your company’s activities. It demands greater control of corporate processes to guarantee that the pre-defined results can be achieved in a satisfactory manner. Thus to evaluate this part, we need to analyze your company’s performance indicators.
The second front focuses on your employees. They need to meet the goals that have been established for them, but these goals must be flexible enough to allow room for adapting to changes – which may come from the company or the market itself. This ability to adapt makes it possible to correct processes that are already underway so that the established goals can be achieved in the best possible manner.
To implement performance management in your company, you need to base it on three pillars. They consist of:
The market is highly competitive and for a company to stand out it needs to innovate and reinvent itself. To do this, your company has to adopt a policy of seeking continual improvement in its processes — and this means change. These changes may face resistance, thus it will be necessary to work with your employees to be successful.
To offer the best products and services, your company needs to clearly define your goals and stipulate which working model will be adopted to achieve them. These goals should be specific, measureable, attainable, relevant and timely.
To achieve the proposed goals and succeed in implementing a system of continual improvement, you need to have a team of professionals qualified for the work that you need to do. Your company needs to have a team of workers who are appropriate in terms of your goals and demands.
This management model has much to offer your firm. Work goals are shared, your employees will be more motivated, productivity will improve and projects will tend to be more successful. Thus your work will become more efficient, and you will meet your customers’ expectations.
In addition to his, you can create an environment in which your employees feel valued and have greater incentives for professional development – because they need to constantly improve their skills to attain their goals.
Have you used performance management in your company? Do you intend to implement this management model? Take this opportunity to share your experiences and opinions by leaving a comment!
No company can get by these days without having activity reports and budget spreadsheets, with the latter being particularly important because it’s directly involved with your company’s spending. For small and medium-sized companies, with revenues of up to $ 15 million a year, this spreadsheet is even more crucial due to the number of competitors out there, the constant need to cut costs to improve your cash flow, and the need to have alternatives available when you’re faced with making strategic decisions.
With a well-structure budget spreadsheet, you’ll have everything a manager looks for: control over your procedures and a broad, clear vision of what spending may be unnecessary. In today’s post, we’ll offer a few tips about budget spreadsheets and how to develop them for your company. Check it out!
There are two easy ways to mount a spreadsheet: using Excel or Google Sheets (located on the Google Drive). These forms will guarantee that you can organize your data quickly without any difficulties. Then it’s essential that you divide it into periods, months or weeks, so that you can make future comparisons about your increased or decreased spending and revenues.
Then you should describe each expense in the selected period (labor, inputs, electricity, water, fuel, etc.). With a comparison of this spending in hand, set a goal and try to achieve it, or in other words, this spreadsheet will make it obvious if there’s waste occurring during a given period, and you can take the necessary steps to correct it or come up with alternatives that won’t affect productivity.
This is the main reason to develop a spreadsheet. If you have control over your budget, you’ll know how to manage your costs efficiently, and will know when you need to increase investment, guaranteeing reliable financial analysis.
Another benefit of developing a budget spreadsheet is it gives you greater agility in making financial analyses – which was unlikely to occur before – and it will offer responses for possible problems that can arise. Thus you’ll be better able to understand your situation and respond appropriately.
Remember: even though it’s a cliché, the phrase “time is money” is quite true.
Everything that has been mentioned here is nothing more than planning for your company. Well-executed planning will ensure that your company survives and even expands, no matter what the current market situation may be.
But the bottom line is, how important is a budget spreadsheet to your company? At the beginning of this article, we mentioned the need to improve cash flow, which means nothing more than oiling the corporate machine. This will save your company during economic downturns and will guarantee that all of your company’s commitments will be honored. With a budget spreadsheet, your company will have a healthy cash flow and will be ready for any situation.
It’s essential that the budget spreadsheet be filled in by a single professional, or at most by a small team, so that the data will always be reliable. In addition, since this is a strategic tool, all managers with decision making power should be aware of this data, because nothing will happen without a green light from them, including concrete changes such as cost cutting.
Has this post been helpful? Do you have any other doubts? Leave a comment!
You’ve heard the saying: time is money. In our rushed corporate lives, where everything has to be done immediately, saving time in the elaboration of management reports is fundamental.
Management reports are documents that are used to support company decision making and this is why they need to have reliable, updated data that can be generated quickly – in case there’s a crisis or a problem.
That being so, we’ve come up with a list with tips on how to optimize the way you elaborate your reports. This way you can dedicate more time to strategic planning and obtaining better results. Follow along!
It’s no use putting all of a company’s numbers into a report! This is just going to make the report confusing, and your data will end up losing precision. Management reports need to offer important information to employees and management.
So, before you begin elaborating your report, spend some time thinking about what kind of data your report should contain. Remember to include the data that will have the greatest impact on your business’s success.
A management report is based on reliable numbers, isn’t it? But how can you achieve this when your company has faulty or complicated systems that don’t interact with each other and don’t facilitate the extracting of data?
In addition to losing quality, preparing a report based on such systems leads to time being expended on the verification of the numbers presented. That’s why it makes sense to invest in a tool that makes this task easier, optimizing the process of elaborating your report.
Now that you’ve defined what data you’re going to collect and have implemented a reliable system that will support this process, it’s time to analyze the numbers you’ve extracted. One of the methods that you can use involves the following steps:
With a well-defined process, creating your report will be natural and automatic.
The last tip is a very important one: use clear and objective language. Management reports should be well-written and easy to understand, given that business routines are becoming more and more dynamic.
To do this, investing in visual elements, like graphs, is very important. They make it easier to recognize trends and understand indicators and data, thus providing support for assertive decision making.
By following the steps above, you can create well-elaborated management reports in the shortest time possible, which will give your firm a competitive advantage. But be careful: remember to use systems that guarantee that your data is reliable and that make your life easier by providing more accessible data.
Like our tips? What difficulties have you faced in elaborating a report? Leave a comment and tell us a bit more about your experiences!
Good cost management is fundamental to the growth of any organization that wants to keep up in a market that´s getting more and more competitive.
No matter how big or what kind of business you have, forecasting, knowing and controlling your company´s costs is essential to the management process. We´ll give you a better idea of what efficient cost management means and what you should do to achieve it, as well as the errors that you can and should avoid.
Definition of cost management
Cost management is a process that seeks to understand in detail all the costs and expenses related to the production process and revenue earning for a given company.
Efficient cost management is the rational use of these resources in an intelligent manner. In other words, it’s conducting this process while maintaining the quality of your products and services.
Basic concepts of cost management
To put efficient cost management into practice, you need to first understand the difference between the two main components of this process: costs and expenses. In manufacturing firms, costs are those components that are used in the production process, such as raw materials, labor, and the indirect costs of manufacturing represented by rent, electricity, water, and wages among others.
Expenses on the other hand are monetary values consumed in obtaining revenues that are not directly related to the production process, such as administrative salaries and the money spent on sales and advertising.
Fixed and variable costs
Another important distinction is the difference between fixed and variable costs. This distinction is necessary so that we can determine the difference between the costs that are not related to the production process which will exist even if there are no revenues, such as rent and administrative salaries, and costs that are related to the size of a company´s production such as raw materials, other materials and labor (in the case of manufacturers).
These classifications are important so that the sales price can be defined in the most precise manner possible, taking into account not just the values that are directly associated with products or services, but also those that are necessary to maintain the company itself. If these classifications are not made, prices may not be defined correctly and the company may run into difficulties because it’s actually selling its products below cost.
Efficient cost management
For cost management to be efficient, one has to understand not only how costs behave, but also how to use reports and distinct analyses to display product and service costs per distribution channel and client. This includes a view of the production and non-production processes involved, which will include a broader view of administrative costs, which have grown in importance in recent years.
We should also take into account the small errors and deviations that can occur during the production process which can affect the final values for products and services to a significant extent. Ignoring the cost of support areas or using simple cost assignments based purely on production quantities or revenues can also result in important distortions in the calculation of the costs of these products and services.
Advantages of cost management
Good management goes beyond focusing only on increasing profit because, depending on the progress of the economic scenario, reducing costs, for example, is smarter and simpler than creating strategies to increase revenue.
When done efficiently and continuously, cost management positively impacts the company in a number of ways. Check out below what are the benefits of the continuous administrative management of your costs and resources. Keep reading.
Reducing risks
Not being fully aware of the expenses and costs involved in running your company is one of the reasons why many companies close their doors. As a consequence, the dynamics of this sector is unknown and presents uncontrolled behavior.
However, by properly managing the fixed and variable costs of the business, it is possible to have better planning and financial management, as well as increased budget visibility and security, which allows for decisions to be made before getting into debt.
Decreasing expenses
How can you cut and decrease the company’s expenses if you do not know them in depth? An effective and continuous cost management makes it possible to identify the waste of resources and exaggerated and superfluous expenses that can go unnoticed in the routine of a corporation.
By doing this, you will have enough information to cut accounts, establish the habit of economics, reduce the volume of input purchase, and consequently lower costs at the end of the month.
Increased profitability
The management of a company works in a cyclical way, that is, one action influences another. When you save on one department, the effects are noticed in the final profit. Therefore, by constantly and properly managing all costs and cutting unnecessary expenses, you will ultimately see an increase in your profitability.
The mistakes commonly made in cost management
Some managers often make some errors and mistakes that can jeopardize the cost control. So that you do not do the same, we selected the mistakes most frequently made in management. Check out below what they are.
Little investment in technology
The market is constantly innovating in order to meet demands. In addition, the market industry is increasingly competitive, and there is no room left for companies that stopped in time and still adopt manual methods in their processes.
Betting on technology is investing in growth and in the better use and optimization of time. Many of the old management techniques are no longer efficient or even viable. There is no more time to lose with annotations on diaries, notebooks, and piles of files.
To avoid making this mistake, bet on technologies and use strategic cost management software, systems and other tools that make your work easier. They can store information more quickly and safely.
Lack of predictability of expenses
Another great error that can lead to serious consequences is to not predict the company’s expenses. Many managers do not estimate the costs of projects and strategy implementation. As a result, the values end up being greater than the finances allow, which results in loss.
Therefore, always make forecasts by reporting and analyzing the values of all the steps of an activity before carrying out the plan. It is important to research prices and especially analyze cost and benefit in order to verify if the proposed action is possible for the enterprise at that moment.
It is also important to emphasize that analyzing the relevance is essential, so that the most affecting and significant aspects of cost management are considered first. That way, you do not waste excessive time on decisions that, in the end, have little impact.
And remember: when there is no cost management, there is a great risk of getting into debt.
Did you like this content? Then check out how to get back in the black and recover your company!
Economizing can be the best solution to guarantee a strong cash flow and keep your business competitive. The problem is that frequently managers don’t know where to begin, since there doesn’t seem to be much fat to eliminate from their expenses.
With this in mind, we’re offering a few simple tips to reduce costs which can make all the difference for your company. Check them out!
It’s always possible to improve some production process – and you don’t have to sacrifice the quality of your products or services to do this. Start by looking at your consumption of water, energy and telecommunications services.
Beyond this, study the whole production process and soon you’ll discover points where waste is occurring, whether it’s in terms of time, materials or labor. With all of this information in hand, prepare a strategic plan for improvements and in a short time you’ll have a more optimized production process with lower costs.
Stock can be one of the most wasteful areas in a company, since poor purchases can immobilize financial resources for a long time. To achieve greater cost reductions, plan your purchases so that they include products that have higher turnover during periods of great demand.
Through purchase and sales reports, it’s possible to make projections of what to order, in what quantity and when. Doing this will give your products and services greater turnover, increasing cash flow and reducing unnecessary purchases.
Review your buying contracts with suppliers of products and services and analyze the conditions for delivery, payment plans and minimum buying volumes required, etc.
Survey other suppliers to find the best opportunities and, if you wish to continue with your current suppliers, renegotiate with them based on the information you’ve gathered from the competition. You’ll probably be surprised by the new parameters that you’ll be able to establish in exchange for fidelity, and your business will achieve a great reduction in costs.
Using your reports again, examine your expense accounts and analyze each expense to identify how to reduce them or eliminate them entirely. Then make a forecast of future revenues and expenses to align your cash flow with programmed purchases.
For example: program your purchases to be paid always on the same dates when forecasts indicate that you’ll have money from sales coming in. With these techniques, along with reducing your costs, you’ll always guarantee a positive cash flow.
Many companies still use manual processes, requiring large amounts of rework due to human error, wasted time due to tasks that could be automated, reports with unreliable data, an excess of printing costs and a large quantity of wasted raw materials in the production process. The solution for all of this is to automate your business using strategic and operational management software (systems) which, along with contributing to cost reductions, should improve the overall performance of your business.
Maintaining your costs under control is what sustains the survival of companies in competitive markets and putting these tips into practice can increase your company’s competitive force, leading to sustained growth.
Like our tips for reducing costs? Then sign up for our newsletter and receive other content similar to this article!
