How to Control Costs and Best Allocate Resources

How to Control Costs and Best Allocate Resources

As a business leader, you may not always be able to predict the next opportunity or challenge to come your way, but you can put measures into place to fortify your financial foundation to help you respond from a position of strength. A sharp focus on cost controls and prudent resource allocation may give you the solid footing you need to navigate what’s next.

Start with clear goals and a sound budget

Your working budget should be built around clearly stated business goals. Segmenting your costs into categories, or buckets, that include areas such as operating expenses, payroll, human resources, IT, marketing, professional services and capital expenditures can support your success in reaching these goals. Over time, you will be able to see cost fluctuations in each bucket, resulting from external price increases or internal decision making, and evaluate whether you are allocating dollars toward the areas producing the highest return on investment.

Make sure your budget also includes a contingency fund for unforeseen costs that may spring up in any of your designated buckets. You can’t anticipate every scenario your company may face, so build in enough financial flexibility to help you manage business disruptions or hardships.

Review your financials monthly, quarterly and annually

As you track and record your company’s spending across various categories, you’ll shine a light on expenditures so you can see which areas of the business may have been over- or underfunded. Regular budget check-ins, including in-depth reviews with your leadership team and department heads, can help you identify opportunities for strategic adjustments as your priorities evolve.

Regularly scheduled reviews may also help you track your progress toward your financial and business goals, and forecast financial needs for the coming months and years.

Explore reallocation alternatives

Your mission and business goals should always guide your funding allocations, but look at those allocations from different angles to see if alternatives could be more beneficial to your bottom line and overall operations. For example, ask your leadership team strategic questions such as these:

• Is it a better use of our financial resources to keep all functions in house or to outsource some of them? (Think IT, accounting, payroll, marketing, research, etc.)

• Would investments in technology net us savings by enabling us to move employees from routine, low-value tasks to higher-value tasks?

• If we were to move funding from office space and overhead to investment in a remote work model, would we save money and/or boost productivity and morale?

Evaluate and implement cost control measures

Every business is different, but there are some common areas where companies find they can cut back on costs. Here are a few ideas to consider, but broaden this evaluation to other potential savings opportunities that may be unique to your industry or business.

Negotiate with your suppliers. Negotiating pricing and payment terms with suppliers can be critical to cost control. Ask about discounts for large purchases, early payment, etc., keeping in mind that negotiation should be a give-and-take, with parties working toward a mutually agreeable contract (butting heads isn’t likely to help you foster long-term relationships with your suppliers). You may also want to put some contracts out for competitive bids to either compare established suppliers or identify new ones that may offer better prices or terms.

Strive for peak efficiency. Focus on continually streamlining and improving processes and workflows across your organization to minimize wasted time and resources. Are there opportunities to automate routine activities? To consolidate support functions that overlap? To optimize your warehousing operations by investing in inventory management software?

Be sure to talk with employees about how and where their time is spent and if they have ideas for tightening up their processes or lowering costs in their areas. They can offer up-close perspectives you may not otherwise have.

Be energy-efficient, too. Depending on the type of business you operate, energy consumption can be a huge drain on your resources. Schedule a comprehensive energy audit to help you understand where your business spends more than necessary on energy. Then consider energy-efficient technologies such as LED lighting and smart HVAC systems, as well as renewable energy options like solar panels and smart building controls, to reduce your operating costs and be good environmental stewards.

Foster a cost-conscious culture. Create and enforce policies for spending, and share your vision related to efficiency and productivity. Make sure your employees understand that controlling costs is essential to profitability, which benefits them personally, whether taking the form of monetary bonuses, regular pay raises or job security. When everyone works together, the company’s collective goals become that much easier to achieve.