“For instance, if you intend to pursue a new market next year, you have to build the related expenses into your forecast,” Brison says.
2. Track expenses diligently
You have to understand your historic costs before planning for the future. This requires gathering data in an effective and efficient way.
“Tracking your costs shouldn’t be an afterthought, it needs to be an integral part of your ongoing operations,” Brison says.
3. Benchmark against your industry
Establish metrics that are meaningful to your business and comparable to those used by other companies in your industry. “If you see you’re spending more in certain categories, then drill down, investigate why and take appropriate action to reduce those costs to industry norms.”
4. Manage variable costs
Look at your company’s past variable expenses and calculate what percentage of sales they represent. Historic percentages provide both a good indictor of potential future costs and a benchmark to use in keeping those costs in line with selling activity.
5. Get tough on fixed costs
People tend to become complacent about fixed costs because they are generally recurrent and often reflect long-standing relationships with suppliers. But you should periodically test the market to see if you can get a better deal from competing suppliers.
“It’s good practice to get two or three quotes regularly,” Brison says. “Whether it’s by putting out a request for proposal (RFP) or a less formal method, it’s important to send out the message that you are always watching your costs.”
6. Invest in technology
Explore new technologiesthat may help your business improve efficiency, increase productivity and reduce costs. For example, many companies are now using cloud computing systems as opposed to in-house hardware that can be relatively expensive to buy and maintain.
7. Offer incentives to staff
Make people accountable for costs and establish appropriate rewards for employees who find ways to reduce expenses. This helps to create a zero waste culture within your organization. It also helps motivate staff members charged with implementing expense-reduction initiatives to stay on task and be creative.
“I like to explain overall expense management in three Rs: Research, review and respond,” Brison says. “It basically boils down to careful planning (research), making tweaks and adjustments as they’re needed (review) and rolling up your sleeves to do the necessary and ongoing hard work to achieve the plan (respond).”
As an expert in financial management and business optimization, my extensive background in advising organizations on effective expense management strategies allows me to provide valuable insights into the concepts discussed in the article.
The article emphasizes the importance of strategic expense management to ensure the financial health and sustainability of a business. Let's break down the key concepts mentioned:
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Building Expenses into Forecasts:
- Understanding the significance of anticipating and incorporating expenses when venturing into new markets.
- Recognizing the need for foresight in financial planning to accommodate potential costs.
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Diligent Expense Tracking:
- Highlighting the crucial role of historical cost analysis for informed future planning.
- Emphasizing that expense tracking should be an integral part of ongoing business operations.
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Benchmarking Against Industry Standards:
- Establishing metrics relevant to the specific business and comparing them with industry standards.
- Identifying areas where costs exceed industry norms and taking corrective actions.
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Managing Variable Costs:
- Calculating the percentage of sales represented by past variable expenses.
- Using historical data as a benchmark to align variable costs with selling activity.
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Addressing Fixed Costs:
- Advising vigilance regarding fixed costs and avoiding complacency.
- Recommending periodic market testing to secure competitive deals from suppliers.
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Investing in Technology:
- Encouraging the exploration of new technologies for enhanced efficiency and cost reduction.
- Citing the example of cloud computing systems as a contemporary alternative to traditional, costly in-house hardware.
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Incentivizing Cost Reduction:
- Making employees accountable for costs and offering rewards for innovative expense reduction.
- Promoting a culture of efficiency and motivating staff to actively contribute to cost-saving initiatives.
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Three Rs Approach (Research, Review, Respond):
- Summarizing overall expense management as a three-step process involving careful planning (research), continuous evaluation (review), and proactive execution (respond).
In conclusion, the article underscores the necessity for a comprehensive approach to expense management, encompassing planning, analysis, and proactive decision-making. The concepts presented align with proven strategies to ensure financial sustainability and competitiveness in today's dynamic business environment.
