Business Costs - Are They Adding Value?
In times like these, business owners take a very critical approach to all costs their business incurs. Whilst reviewing costs should be a constant process for any business, it’s important to remember that there is a finite amount by which you can minimise costs without harming your ability to provide a quality service or product and produce a sustainable profit.
Look at the outgoings in your business and question the value you are receiving from the outlay and can you identify the return on this investment in the medium to long term? Is this cost part of laying the foundations for future growth and profitability and efficiency of the business or, is it simply a commodity that can be shopped around for?
A word of warning – suppliers are not equal in terms of value they offer your business – it’s important to nurture relationships with key suppliers that are adding (and will continue to add) value to your business.
When looking at the costs and outgoings of your business it’s important to have the necessary, accurate, timely, information on which to base your analysis. Any basic accounting system should produce standard reports to assist you in your analysis, these would include:
- Profit & Loss (showing each cost as a percentage of your income).
- Profit & Loss Comparison Reports (Comparing your Profit & Loss with the last year and showing a variance from one period to the next, this will show where your costs have actually increased over the period).
- Balance Sheet Comparison Report (showing the movement in your Balance Sheet accounts for the Profit & Loss Period).
- Statement of Cash Flows Report (shows where the money has gone).
- Budget vs Actual Report (Comparing your budget with your actual figures puts things in perspective, and quickly identifies unexpected cost overruns or a decrease in expected sales income).
- Debtors Aged Summary Report, effective Debtor management is vital for any business.
- Profit & Loss Budget and Cashflow Forecast for this year – It’s useful to know where you’ve been, it’s more important to know where you are going – so setting a Profit & Loss Budget is vital – what you set is what you get. Be sure to also budget for what you take out of the business in wages, drawings, loans to fund “lifestyle assets”, and now may be the time to determine what that expensive (rarely used) toy is costing you.
What we hear now – more than ever, when paying the bills – is the question of “value”. We are asking ourselves, am I receiving value from this cost? On the flip side we should also ask ourselves when we issue an invoice, am I delivering (and communicating) value and am I confident that this value is perceived by our customer, client or patient, as the case may be?
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