The basis of any successful business is that the income must exceed costs or expenses. Therefore, to increase your profitability level, you either increase your revenue or reduce your costs. Better yet, do a combination of BOTH. A business to be sustainable MUST deliver consistent levels of profitability as well as having a system to keep the costs in check. This is a no-brainer, however most business owners allow their costs base to go out of hand over time till the stress of decreased profitability is felt and at times it might be too late for any turnaround.
To prevent your profits from going south, you MUST have costs control measures in place and to watch your costs base like a hawk, never to allow any cost items to go way out of your predetermined levels without investigations. It is always easier to fix any problems early than later.
Having said that, there is always an issue of who should be the person or which department should be responsible for costs control? I have seen some of my clients installed sophisticated computer costs control software programs to help determine costs behavior as well as generating a timely report as required by the management. They would call this the Costs Control Department. While I am always amaze by such innovations in computer technology, I have always felt that costs control MUST be the responsibility of every one working in the business. From the CEO all the way down to the Security Guard at the Guardhouse. The logic that we found at our clients’ business is that every employee can help the company save money within their work area and scope. This is one of our methodology to “find” money from our clients’ business on a ‘as-is, where-is’ basis. It has never failed to amaze our clients. 5 cents here, 10 cents there can add up to a sizable amount over a period of time. Every drop makes an ocean.
Another reason why companies are not “finding” money is because they do not have the what we call “costs consciousness mindset.” This failure has to do with the money behaviors of the CEO and other HODs as far as costs control is concerned. How they treat every cost is an example for their employees to follow. The fish always rot from its head.
Last but not least, be aware of unhappy employees. You will be amazed at how they can increase your costs base exponentially. Whenever you ask them for ideas to reduce costs, they will have nothing to contribute. It is a sign of rebellion that their welfare are not being taken care of by you. To them, increasing your costs bases is a form of ‘punishment’ that is so logical and right. So take good care of your employees and they will take good care of your business and customers.
Most companies opt for massive layoffs and cuts as a last resort to improve profits. We feel sorry for them and the number of good employees they laid off. We have always felt that massive layoffs and cuts are NOT necessary if the the CEO and all employees can come together as one and make the workplace a place for fun, love and cheers.
Victor Ang is the original author of this article. He can be reached at firstname.lastname@example.org to answer your questions.