How to Increase Business Profits – Cost Management
- October 9, 2021
- Posted by: Sadaf Mojza
- Categories: Business Consulting, Business plans, Business Troubleshooting, Competitive research, Finance & accounting
The biggest concern for any business at any level is How to Increase Business Profits. Whether it is a start-up, a sole proprietorship, or a multinational company – it is important to identify factors standing in the way of maximizing profit and eliminate them. Just maintaining a steady stream of profit isn’t enough, it is important to expand profits so growth and development can be achieved both demographically, and in terms of goods and services being offered.
The biggest and easiest way to increase business profits is to manage the costs. Cost management is considered something of an art today, but it is actually simpler than it sounds. We have simplified into steps all the things you should keep in your mind when trying to manage your costs.
What are your key costs?
It is important to first and foremost identify what your key costs are. If you are sourcing things from other vendors as well, how practical is your deal with them? Are they giving you good value for money? Are there other suppliers and vendors around that can offer you better quality, better prices, or both?
Another good idea is to go through all your financial records and consider overdrafts, loans, and the overall financial facilities that you are using. Are the terms being offered to you fair? Are there financial institutions out there offering you even better value for money?
Your overhead costs include your rents and bills. Go over these costs as well – is the area you are working from feasible? Does it add any unnecessary expenses? What other options are there that will help you cut your overhead while benefiting your business as well?
If you have a production business, analyze your entire production line very critically. Are the costs of raw material justified? Are all expenses accounted for? Is production streamlined, and are there any hidden costs that are cutting into your profits? A smooth production process which is also well-streamlined immediately eliminates wastage and unnecessary costs, increasing your business profits as a result.
Further relevant reading: The Seven Waste Wonders
Activity-based costing (ABC)
Activity-based costing means specifying the exact costs of different business activities. For example, there should be accurate numerical records of the salaries, raw materials, rent, etc. that the business is incurring. While analyzing the cost of each activity separately may take some time initially, once it is all set up and becomes part of the overall operations process, it makes it extremely easy to pick out avoidable costs. Anything that looks abnormal in the costs thereon will point specifically to the problem areas, and will therefore make rooting out and eliminating the problem easy too. Other traditional costing methods, while less time-consuming, don’t uncover hidden and unnecessary costs as effectively, therefore causing a direct hit to the profits of the business as well.
Watch the profits grow
While cost management overall is an elaborate science involving multiple models and strategies, mapping out key costs and applying activity-based costing is a great start to increasing business profits. It will make your life as a business owner easier, and will also pave the way for more business growth and development.
Watch the IKTAR Blog space for upcoming articles on increasing profits! Reach out to us here to share feedback, or if you have any queries or confusion.
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