Control your costs, don’t let them spiral out of control!

The big subject I have focused on for the past few weeks is money. Money in our businesses is probably our biggest concern. Cash flow, controlling costs, improving margins and of course the holy grail increasing our profits.

The conundrum for most businesses is how to increase profits, and the obvious answer is increasing sales of course, or improving conversion rates. This however invariably means an increase in costs to produce those sales, whether it is more staff, equipment, external or internal resources. The first place to look is controlling costs, or lowering costs to increase margins. This should be an absolute priority within your business.

One very common aspect of running a business is spiralling costs by not keeping increasing sales aligned with operational requirements. Costs can easily get out of control, and while you are working hard to produce the work, costs can mount up very quickly. Before you know it, your profit margins are reducing, and you have that feeling that you are losing a little control over the businesses ability to be profitable. You may be thinking that I need to run through the business costs, but not quite sure how I quantify this or put in places mechanisms that will help me monitor costs in the future.

I can certainly empathise!

I can fully understand this feeling and very much experienced it myself. Running a £multi million food manufacturing company supplying supermarkets was fraught with the potential to absorb significant cost increases, creating negative impacts on the profitability of the business. We ran a business on incredibly tight margins, where a 1% increase in gross profit was a huge and very positive benefit to the company, and in fact could mean the difference between profit rather than loss. We purchased a lot of highly perishable ingredients for our product ranges including milk, cream, eggs, mascarpone, cream cheese, chocolate and many others.

Typically, the price of these ingredients fluctuated regularly, so we would actively commodity trade and engage in long term contracts to achieve stability and maximise our purchasing power. With over 70 staff, the consideration for recruitment was always factored into our growth plans, with staff costs kept to tight financial percentages, and we constantly looked at ways we could create efficiencies to reduce those labour costs and operated bonus schemes to reflect the gains achieved. We also invested heavily in equipment, but our analysis of expenditure against efficiency improvements was a continuous consideration. If we could manufacture more products per hour, we would quantify this against the investments in equipment, to ensure we ‘sweated the asset,’ and how long it would take to pay back on our investment. The capital expenditure requirements also meant we carefully considered the diversity of our product portfolio, looking at the risks involved with each investment. Short and long-term cost planning was an essential part of our business model.

Twenty five years in the food industry dealing with the supermarkets was a huge learning curve for me as a business person. It taught me the value of controlling costs, and why you need to be proactive rather than reactive. In fact the main reason the supermarkets are so successful is that they have their ‘fingers on the pulse’ with every cost associated within their own businesses. In reality if we hadn’t been so proactive, Indulgence wouldn’t have been a successful company growing continuously year-on-year, it just wouldn’t have happened.

That feeling of losing control in any business is not a good one, so having the tools in place that not only help you to monitor your costs real time, but also plan your growth with cost control in mind is an enormous benefit to all businesses. It really can be the difference between success or failure.

I have developed a set of superb tools for any business type, and these tools enable businesses to be confident about growth, look at costs and margins before increasing sales, knowing that you have full control over your business growth, and those all-important costs within your business model.

Increasing sales, and of course increasing investment in your marketing and sales is hugely important, but before you even embark on this route, firstly looking at your costs, be proactive and you will be in full control of your business growth. Well, certainly where your costs are involved!

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