Cost Controls

Every new dollar of sales results in only a small percentage of that sale going to the bottom line.

BUT - every dollar of costs that are saved goes directly and in full to the bottom line.

Forecasting, monitoring and controlling costs is key to profitability performance.

• Fixed and variable costs: Fixed costs remain the same irrespective of business activity, such as salaries, rent, insurance. Negotiate better contracts where possible. Variable costs change proportionally to business activity (increase when firm activity increases), such as transformed input materials purchases, wages and contract labour, utilities usage.

• Cost Centres: The creation of separate cost accounts for divisions / units within the firm to identify costs (and efficiencies) of each. This allows financial managers to make decisions on ways to minimise expenses that are targeted toward problem areas in the firm.

• Expense minimisation: An overall focus on cost-cutting; finding every way possible to squeeze out all unnecessary costs without risking quality. A limited strategy for business success; first a firm must continually create new value (products) for customers, then go about cutting costs.