Cost controls: strategies for keeping your expenses in check

If your organization’s bookkeeping reveals a negative cash flow, there are a few ways to turn things around. You can find new income streams, slow your spending, or both.

But you don’t have to be in financial distress to implement cost cutting measures. Cost controls are also a preventive measure that keeps you from overspending in the first place. With carefully controlled expenditures, you can stay in the black. Read on to learn more about the keys to keeping expenses in check.

What is cost control?

Cost control is the practice of analyzing a business’s expenses and financial data so that every dollar spent earns its place. Putting cost control measures in place can keep your budget on track, help you evaluate your spending patterns, and allow you to make informed projections. The process looks for spending to eliminate or reduce, without cutting the capacity you need to deliver for customers.

Cost controls compile both fixed and variable costs and divide them into cost centers. Once both types of expenses have been properly attributed to the correct centers, you can see which costs drive revenue and which don’t, and decide where to cut back.

Common forms of cost cutting include:

• Layoffs or reduced staff hours (following federal and state employment law, including the WARN Act¹, which requires advance notice of qualified plant closings and mass layoffs)
• Limiting staff travel
• Finding less expensive vendors
• Bundling services for discounts
• Reducing non-essential perks
• Canceling unused software subscriptions
• Lowering leasing costs
• Buying in bulk to reduce per unit cost

Why cost control matters

Out-of-control spending can sink a promising company quickly. Cost controls let you catch problems early. The aim is a sustainable margin, not the lowest possible spend: a saving that removes the people or tools you need to deliver the work usually costs more in lost revenue than it saves.

A cost management system helps your business:

• Maintain responsible hiring practices. Can you really afford to hire a new full-time bookkeeper? Overspending on payroll is a common mistake in growing companies. Alternatives like part-time staff, contractors, or an outsourced service can cut costs without leaving you short-handed. Check that a contractor arrangement is genuinely independent work and not employment, because the IRS weighs the degree of control and independence² in the real relationship, and the employer obligations follow it.
• Keep budgets on track. Defining a budget for each department and project is crucial. A cost cutting analysis identifies areas where you can reduce your budget and come in at or under your desired costs.
• Make plans for scaling your organization. Pinpointing where you can cut costs also makes it easier to scale at a responsible pace. A solid cost cutting plan will identify when you’re ordering too much inventory or spending too much on storage. You will grow when you’re ready.
• Set expectations for staff spending. A report in hand allows you to communicate about spending more effectively with your team. You can let your project managers and other team leaders know exact spending parameters so they don’t go over budget.
• Define spending-conscious deadlines. Is your team losing time? Time overruns are a common cause of overspending on projects. Cost control may mean setting realistic time budgets and tracking work against them.
• Increase profitability. Ultimately, cost controls serve to make your organization more profitable. By matching staffing to demand, cutting unnecessary expenditure, and using time more efficiently, you can lift your profit margins.
• Set appropriate prices. Cost control analysis can determine the cost per unit of whatever it is that you sell. Once you factor in labor and material costs, you may realize it’s time to increase the price tag of your products or services.

Strategies for keeping your expenses in check

You believe in the merits of cost control management. But how exactly do you go about implementing effective measures? These strategic moves are a savvy way to figure out which costs need to be reduced.

Define specific KPIs

Do you want to manage staffing costs or reduce your technology expenses? You can’t know whether you have succeeded in cost cutting unless you know what your goals are. A key performance indicator (KPI) is a specific metric that helps you define your wins and losses. For many companies, KPIs include things like achieving a specific profit growth or increasing the number of customer accounts. For cost control, KPIs may measure how much you lower your expenses in specific areas.

Anticipate market fluctuations and inflation

You should also consider market changes when you plan for cost cutting. As inflation requires a larger budget in one area, you may have to control costs elsewhere. A cost control plan needs some flexibility to adapt to changing conditions.

Track expenses in real time

Reviewing past spending is good, but tracking real-time expenditure is better. Flag overspending before it goes too far by using accounting software and spend approvals that track your costs as they happen. That way, you can identify issues sooner rather than later and adjust as necessary to meet your goals if unnecessary spending occurs.

Consolidate your purchases to negotiate better pricing

Everything from insurance to bulk item purchases can often qualify for a discount if you ask. Consolidating your purchases with fewer vendors gives you more bargaining power. For instance, commercial property and commercial auto insurance may be bundled for a better rate. You may be surprised at how much cost cutting is possible with a few simple changes.

Prioritize your contractor and vendor relationships

A supply shortage or price increase can really mess with your annual budget. Controlling your costs also means maintaining the relationships that may lead to price discounts. If you make your vendor relationships a priority, they may make you a priority when you need it most. Cultivating relationships can also mean referrals and other income streams in the future.

Outsource your bookkeeping with Visory

Outsourcing your bookkeeping and reporting can also be part of a cost control plan. Visory runs bookkeeping, payroll, accounts payable and receivable for growing businesses, with a dedicated team and its AI, Delphi, overseen by that team. Instead of carrying the full cost of an in-house finance function, you get timely numbers, and Visory Insights with a Business Performance Partner helps you see where costs are running ahead of revenue and decide what to do about it.

Cost control strategies are key to running a successful enterprise. Identify key performance indicators, then cut the costs that don’t earn their place. If you want a second pair of eyes, get your free financial health check.