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How to cut costs in your business

Every successful business manager knows that their top priority is to safeguard the financial health of the business they manage. Studies show that a majority of business failures result from poor financial management. It is important to keep in mind that this is true even for businesses that have a healthy rate of sales. This makes it crucial that any business manager make the financial health of their business a top priority. One of the major facets of managing business finances is making sure that the costs of doing business don't get out of hand. Here is what you need to know about how to cut costs in your business-

- Does it add to the bottom line? The first consideration when you are looking at cutting costs is to determine if the costs add to the bottom line. If there is anything in your business that does not directly affect your bottom line in a positive way then you should consider getting rid of it. However, it is important to realize that this is not a hard and fast rule. Keep in mind that if you cut to much you can seriously damage your business' chance of survival but if you don't cut enough you can also hurt its chances, as well. The key here is to cut with precision.
- It is the cost producing something? The next consideration when you are considering any particular cost is to determine if the cost produces something. Even if the cost does not produce your product or service directly it may affect it indirectly. You will need to research carefully in order to decide what costs produce and what don't. After you have this information you can then decide what costs must be cut and what can be kept. Many times business managers find that they are paying for services and/or consulting that they don't really need when they look at cost cutting from this perspective.
- Does the cost have a high rate of return?When you are costing cutting you should also determine if the particular cost you are considering cutting has a high enough rate of return. You want to make sure that every dollar that you spend within your business has the highest rate of return possible. From inventory to marketing each dollar that you spend should bring in the best possible return. Keep in mind that many times when costs are looked at from this perspective you may not have to cut the costs directly but instead shift the money where it will bring in a higher rate of return. The bottom line is to make every dollar that you spend in your business really work for you.
- Is the cost contributing to profitability? If you are a busy business manager you may have overlooked the fact that there are most likely plenty of costs in your business that don't contribute to your business being profitable. If you have costs that are luxuries or things that are done for entertainment you will need to seriously consider if you can afford them. If you need to cut costs to stay open this is one place to do it. Your employees will want their jobs more then a fully stocked kitchen break room or yearly catered employee party. Another common cost that doesn't always add to profitability is travel. With today's technology there is no reason that someone from your business has to attend every meeting, conference, and special event. You can use tele-conferencing to exchange information with clients and other key contacts and totally avoid the associated costs of travel.

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