Tips for Running a Cost Analysis

Corporate Business Solutions  has experience implementing cost control systems and accounting into small and medium – size businesses. These areas are crucial to the development of any size business, so don’t wait too long to get the help you need. 

If you’re a new business owner, it’s critical to run a cost analysis for your business as you start it up.  Below are general tips that may help you with the process:

1. List out all of your business costs - Break your costs up two ways (or more if that helps you) – at the very least into fixed and variable costs. These are the one-off costs that you need starting up, like a lease on a location, compared with the variable costs associated with the ongoing operation of your business, such as the cost of the materials or supplies that you are going to sell.
2. Add the amount - Add a dollar value to every single one of these costs. Be realistic – do not make assumptions about being able to get discounts or costs dropping as volume rises – those only get counted when you know you have received them.  Now take a very hard and realistic look at these costs. Set up a spreadsheet for the first year of business with all the fixed costs across the top and variable costs in a separate section below where they can be linked to volume. Plan these costs out over the year. Again be realistic – make no assumptions of success.
3. Eliminate as much as possible- Look at all your costs and think about if you really need to spend the money. Don’t be foolish about it – don’t remove costs you really will have to spend - but also do take out things that you know you can get by without. Think about the fact that every penny saved here is a penny added to your potential profit. And also think about the risk of cutting out things that will affect your ability to actually deliver to your customers.
4. Real world costs – Put real numbers against your costs and get costs as close to reality as you can. By now you have looked at your costs enough to understand how important each of them is going to be toward your business so you can make smarter decisions about the levels and amount of spending you are prepared to make. If you can’t get the costs down to where you can make money then you are in trouble. If after this exercise you are in trouble, don’t despair yet. Give it a day or two and go back and see what else you can save and do without. After that, if you can’t make the numbers work, it may be time to get some professional help!  A third-party objective point of view can often provide a business owner just what he or she needs to figure out the solutions which are necessary to make the business profitable and successful.
5. Develop a managerial cost system that budgets percentages rather than dollars.  In other words, take all the categories for expenses you have identified above and create an Excel spreadsheet which includes the percentage of total expenses for each category, with profit being your first budgeted line of expense.  Then set up a program where those percentages can be tracked over a period of time such as every month, every quarter and every year so that the variances can be identified quickly and action can be taken when percentages get out of line.  In other words, you want to budget percentages for your costs, rather than simply dollars.  You control your expenses by controlling the budgeted percentages for each category of expense with your budgeted profit being the minimum profit you will accept.  This will force you to be a disciplined business manager by making changes in your expenses rather than accepting a lower profit for yourself.

To learn more about us and / or to schedule your complimentary appointment with the business experts at Corporate Business Solutions, call us at 877-357-9366.