It’s important that wise and efficient cost control is essential for achieving success and sustainability for every business. As renowned industrialist and philanthropist Andrew Carnegie stated, “Watch the costs and the profits will take care of themselves.” Benjamin Franklin offered this perspective: “Beware of little expenses; a small leak will sink a great ship.” Thus, controlling business costs should not be considered an elective or insignificant responsibility.  

What is Controlling Business Costs 

Controlling business costs defines the activities and strategies involved in identifying, analyzing, monitoring, managing, reducing, or at least restraining the growth of business costs over time. Controlling business costs should be done in a way that profits are improved without jeopardizing business operations.

Why Controlling Business Costs is Important for Businesses 

Effective cost controls should provide important benefits for businesses. First, they can help a company maximize its profitability. Second, they can help a business secure financial stability by keeping expenses in line with revenues, avoiding cash flow problems, and reducing the need to incur more debt. Third, they can help a company be more competitive by enabling it to manage pricing while maintaining or improving product or service quality. Fourth, they can help an enterprise optimize its use of resources. Fifth, good cost analysis and controls can provide accurate information for decision-making, thus increasing the likelihood of successful decisions. Sixth, good cost controls can make a company more adaptable and resilient to economic and market changes. Seventh, they can allow a company to free up funds to invest in growth opportunities, thus paving the way for increased sustainability.

Tips for Analyzing and Controlling Business Costs 

Controlling business costs starts with good cost analysis. That involves taking a systematic approach to classifying and evaluating all costs; the variable, semi-variable, and fixed costs. Costs must be evaluated according to cost drivers, variability, and time horizons. 

Use these 10 tips for controlling business costs: 

  1. Create a solid budget that addresses, limits, or eliminates unnecessary spending and helps the business stay within budgetary limitations. 
  2. Implement a rigorous and efficient data collection process
  3. Monitor and measure all expenses consistently in real time using good reporting and analytics. All business projects with line-item budgets should have project milestones, reporting requirements, and standard controls. 
  4. Cost categories and projects should have established key performance indicators (KPIs) to measure their performance. A few of the most important KPIs are operating cash flow, budgeted cash balances, product sales, materials costs, labor costs, sales expenses, cost of goods sold, inventory turnover, and general and administrative expenses.  
  5. Establish contingency plans to allow a company to anticipate scenarios that challenge budgets and business timelines. 
  6. Use change control systems to document cost and budget variations. 
  7. Where possible, automate cost control processes. 
  8. Foster a cost-sensitive and cost-controlling culture in the organization. 
  9. Maintain good internal communication throughout the organization regarding business results and costs. 
  10. Seek expert assistance with cost controls. 

Ways to Reduce Business Costs 

Businesses can reduce business costs by reviewing and optimizing supplier contracts, streamlining operational processes, reducing overhead expenses, optimizing inventory management, and reviewing and changing marketing and advertising strategies. 

Seek Professional Business Coaching Assistance 

Contact Blue Diamond Consultants, doing business nationwide. Our coaching services are based on extensive experience through previous success for home service provider businesses.