How to reduce business expenses

Cost reduction is an effective way to increase company profits, therefore, cost management is given a special place in financial management. Costs need to be reduced gradually, while the economy strategy should be implemented at all levels of management.

Instruction manual

1

A saving strategy should be fully justified. Before making a decision on the reduction of certain types of costs, it is necessary to comprehensively analyze all the costs of the enterprise, to consider the dynamics of costs for several reporting periods. If an increase in costs is detected, then it is necessary to determine its causes. The increase in costs can be objectively determined, for example, it can be associated with an increase in the cost of resources.

2

The next stage of cost management is the search for reserves to reduce costs, you can go the way of optimizing production or management costs. Very often at the enterprise it is discovered the reserves for reducing the costs of production and marketing of products. To reduce the cost of raw materials, you can try to analyze the pricing policy of your suppliers, review the terms of contracts or find a new supplier who can provide resources at lower prices.

3

Quite often, the analysis reveals reserves for reducing overhead costs. Overhead costs are not directly related to the production process, they are formed in the process of servicing the production process and circulation, for example: transportation costs, communication costs, electricity and the Internet. To reduce transport costs, outsource some of the functions to a specialized transport company. To reduce communication costs, it is necessary to reduce the number of employees who are paid for at the expense of the company mobile communications, as well as limit long-distance calls. To reduce the cost of electricity, it is necessary to implement a comprehensive energy saving program throughout the enterprise. In some cases, advertising costs may be reduced. The advertising budget needs to be reviewed if advertising costs are ineffective and do not bring additional income.

4

Large manufacturing plants may incur overhead costs for marriage. To reduce such costs, it is necessary to analyze the technological process in detail, find the main causes of marriage and try to increase technological discipline in production.

5

Another effective, but often painful way to reduce costs is to reduce the wage bill. It is possible to reduce labor costs by lowering salaries or reducing staff. Consideration should be given to reducing some departments. Some types of work can also be outsourced.

note

You should always remember that cost reduction should not affect the quality of products.