Keeping a good control of costs
is essential to enjoy a good functioning and achieve the profitability of a company, regardless of its size or activity, since to enjoy good economic health, you must first know how much you spend and what you spend it on.
Although during the time of financial crisis the cost control in the companies of our country has been intensified, the truth is that it should be a totally habitual and indispensable task within a company.
In fact, from AYCE Laborytax we believe that all employees should be informed of the need to implement a cost control policy,in order to involve all departments of the company and facilitate that control.
However, the reality is that there are many companies that are completely unaware of the costs of the products they buy or the services they hire,which is shown as a problem that can have a very negative impact on both the operation and the profitability of the company itself.
The reasons why you need to control your company’s costs once and for all
When talking about the need to keep track of costs in your company, surely the first reason that comes to mind is to reduce expenses. Without a doubt, it is an important reason but not the only one.
Controlling the costs of your company will not only help you spend less, but also make much more efficient use of your business resources,which will translate into greater competitiveness for the company,and many other benefits.
Many companies believe that success is in selling as much as possible, but the truth is that the formula for success is to sell as much as possible, but with the least application of costs.
What is the difference between the cost and expense of a company?
One of the basic pillars for the proper functioning and profitability of a company is its cost control and expense control.
To keep track of the costs of your company, the first thing is to understand the difference between cost and expense since, although in many cases both terms are treated as synonyms, they are not the same.
- Cost: value that has any of the expenses that must be made to be able to produce goods or services: raw materials, labor, inputs, etc.
- Expenditure:it is an outflow of money by the company, which reduces the profits of the company itself, and which is focused on the realization of activities of distribution or sale of the product, administration or maintenance of the company itself, such as the salary of the employees.
To better understand the extent of this difference, we could say that cost is an investment,and is closely linked to the final selling price that a product or service will have.
On the other hand, the expense generates a consideration in goods or services,which contributes to the productive process of the company itself.
While the cost originates in the factory or in production, the expenses originate in the administration and marketing of the company.
What costs and expenses should a company face?
Companies, when trying to keep track of production or distribution costs,must differentiate between three different elements:
- Value of direct materials:everything that is used for the manufacture of products or for the provision of services.
- Direct labor:all those costs caused by the human factor.
- Indirect cost of manufacturing:costs that have been generated throughout a production process, as well as in the place where the provision of a service will be carried out.
If we were to focus on a control of expenditure,we would have to look at those disbursements that do not belong to the production or provision of services:
- Administrative:general expenses for the proper functioning of a company.
- Sales:expenses whose objective is to increase the sale of products or services.
- Financials: correspond to financing interests of the company.
Tips to improve the cost control of a company
Once we have discussed the importance of controlling the costs of a company, and we are clear about the difference between cost and expense, then our specialists in accounting advice share a series of tips both to reduce and control costs in a company, with the aim of promote its profitability and enhance its growth:
- Design a monthly budget of both costs and expenses, and not exceed it under any circumstances.
- Inform employees of the need to control costs,and encourage them with bonuses to achieve economic savings for the company.
- Negotiate contracts with suppliers ona regular basis, with the aim of obtaining better conditions and higher discounts.
- Previously set objectives to be achieved in terms of cost reduction, rewarding those departments that achieve them.
- Carry out an exhaustive analysis and carry out a monthly review of the expenses,comparing them with those of the previous year in the same period, in order to see the evolution and take measures if necessary.
of a company through the realization of budgets and their monitoring will result in a significant reduction in both losses and expenses and, therefore, in an increase in profitability that will enhance the growth of the company for the future.