The importance of having a cost management strategy

 Cost management strategy

Poor cashflow can be the undoing of any business, yet 70% of organisations do not have a cost management strategy, according to a recent survey by management consultants Auditel. It also found that fewer than 2% of companies track costs on an ongoing basis.

In a startup situation, careful cost management is particularly crucial. But where should you begin?

Start as you mean to go on

It’s important to approach any new business mindful of the need to stay cash positive. When Tony Burns opened his bar/restaurant, Pinch in Liverpool in April 2015, he used his previous experience of running other small businesses to keep a close eye on the bottom line and stay focused on the end goal.

“I knew that 50% of all small business startups fail within the first two years, but that a cost management strategy would give me a fighting chance,” he says.

Once he’d decided on the strategic positioning and timeline for the new business, Burns looked at what his monthly and yearly outgoings would be, both personally and for the restaurant. He spent hours researching the best deals on everything from coffee machines to cocktail glasses. This provided him with a good idea of what his costs and break-even figures would be.

“I then sought quotes for fitting out the bar/restaurant,” he says. “It’s very easy to get carried away when a builder shows you the latest lighting systems, but if it’s not within budget it’s not happening!”

It’s also important to make sure you are getting the best possible deal on business services from day one – switching utility or telecoms providers, consolidating bills, and switching business bank accounts can all provide savings without a loss of value. Even if you stay with an existing provider, there may be scope for renegotiation. And if you do find a better deal, free-to-use services like The Current Account Switch Service (in the case of banking) can help make the process of switching seamless .

Review costs regularly

Companies should set aside time to review and challenge costs throughout the financial year. Consider whether each is still justified, or whether there might be a more cost-effective alternative.

“It’s very important to look at your cost management strategy on a regular basis to ensure you’re getting the best deals. This can free up money to be spent elsewhere,” Burns says.

Click here to read the rest of this Guardian report...

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Steve, Cost Management Consultant and Business Improvement

'Lower Your Costs Not Your Ambitions'