You may have heard the saying, “Keep expenses low and productivity high.” Businesses thrive on it but managing cost control in a small or medium-sized enterprise (SME) often balances resource optimisation and growth potential.

For SMEs, cost control is important for success and growth. This guide can help leaders balance spending and expanding their business. It talks about how to manage costs while still growing the business.

This article provides a plan for businesses to address cost control issues. The steps help companies move fast, but they should still be careful in their efforts to save money.

Certain financial hiccups are part of growing a successful business. However, we have learned that this trade-off is sometimes inevitable. The most proficient leaders optimise costs while upholding their commitments to customers, employees, and investors. They keep expenses low and drive growth.

Our collaboration with SMEs has yielded a framework for effective cost control, whether it concerns streamlining operations or making the most of scarce resources.

Readers can answer the following critical questions at the end of this article.

1. What are the key steps to address cost control problems?
2. How can an SME diagnose underlying issues contributing to cost control problems?
3. What experiments or measures will solve cost control problems?
4. How can an SME leader communicate a compelling narrative around cost control changes?

Step 1 – Identify the core of the cost control problem

Start with a cost issue you are facing in your business.

Businesses often complain about high supplier costs, bills, and marketing budgets. However, there may be other reasons for the company’s cost problems. Leaders should investigate deeper to discover the root causes of their cost issues.

Being curious and honest can help you have better conversations with everyone involved. This means having difficult discussions without fear of the answers you might get. For example, talking with your supplier can help you understand how last-minute orders increase costs. Talking with your marketing team can uncover overlooked promotion ideas.

Talking about your problems can help you see them in a new way and find solutions. Identify cost drivers to improve finances.

Step 2 – Develop a plan to tackle the core of the cost control problem.

When trying to solve your cost problem, it is important to plan strategically. You do not need a perfect plan that covers every situation. Instead, focus on making a good plan to address the main issue. This plan should also be able to adapt to changes in the business.

Focusing on progress over perfection is the idea of a ‘good-enough’ plan. Leaders can identify and solve their cost problems without getting stuck on details. This promotes quick decision-making and allows for change.

Simplifying your plan helps you stay flexible and focused on your financial goals. This approach promotes progress.

Examples of “Good enough” Cost Control Plans

1. “Vendor Negotiations” –

You can start by talking to your current suppliers instead of finding new ones or using cheaper materials to control costs. Ask if they can discount you for buying in bulk or paying early.

Check if the payment terms benefit you. If they do, you can buy more and keep it in storage. If you have enough money, you can order more often. Tell your vendors about your financial worries. They usually like maintaining long-term relationships more than making short-term profits.

Cost control involves making gradual improvements in terms. It is not about striving for excellent negotiations.

2. “Efficiency Audits”

Regular efficiency audits can help identify underused or wasted resources. While it may not seem as exciting as expansion plans or product launches, it can still be helpful.

Your buildings may need to be using energy efficiently. Your CRM might need to be fully utilised, or you could have unnecessary steps in your workflow.

The goal is to improve efficiency and reduce costs gradually. It might take more time to achieve perfect operations.

3. “Staff Training.”

Investing in staff training is a long-term yet “good enough” cost control plan. It might seem counterintuitive to spend money on training to save money. However, well-trained staff can perform tasks more efficiently and make fewer costly mistakes. They are often more innovative as they find ways to save money daily.

This approach aims to help everyone on your team perform well by giving them the necessary skills and knowledge. It does not require turning them into super-employees.

Step 3 – Get different Perspectives.

As an SME leader, you should break your routine and connect with new people. This will help you get fresh ideas to solve your cost control problems. Before that, you should create a basic plan to deal with the practical details. Then, you can use the different perspectives you get from others to refine your strategy.

Talk to someone with a distinct perspective about your plan to control costs. Listen to their feedback because it helps you see things you have yet to consider before and improve your approach to cost control. Are your delivery costs spiralling because you need to coordinate routes effectively? Are you missing bulk purchase discounts due to disorganised inventory management?

At the end of this, you will have improved your plan by getting innovative ideas. This will help you find and fix any mistakes in your cost control. Be open to diverse ways of thinking and solving problems. Your cost control plan will be better than before.

Step 4 – Communicate the narrative around dealing with the cost-control problem.

Business owners know that telling a good story can help us make changes in our small businesses. We must explain why we are making changes and get everyone on board with our plan. This helps everyone feel connected to the work and gives us a sense of purpose.

An effective story has three distinct parts: the past, the present, and the future. During periods of notable change, we often overlook the past. We focus on the present challenges and future solutions. However, acknowledging our history is crucial in providing context. We must learn from previous mistakes and celebrate past successes.

When sharing your cost control plans, respect other people’s opinions. It is important to listen to those unsure about your ideas. Understanding their concerns creates a culture of mutual understanding and teamwork.

This approach builds trust and creates an authentic narrative around cost-control measures.

Step 5 – Execute with urgency.

After planning, you can work faster and avoid expensive mistakes. Your team knows what to do and understands the situation well.

Move forward and address your business’s cost control problem. Reflect on the urgency to show your readiness and preparedness.

Addressing cost control sends a message to your team that it is important. Urgency creates a sense that everyone’s contribution is necessary and timely.

You must review and remove any unhelpful or slow processes that could slow you down. You can manage your expenses more by eliminating these obstacles.

The key here is efficiency. It ensures that every step is purposeful and contributes to the goal of cost control.

Case study of the five steps

A small shop called “Cozy Corners” in Lagos had a problem. They were spending too much money on buying things and running the store, making it hard to profit.

Step 1: Identify the Core of the Cost Control Problem

They investigated why their expenses were high to solve their cost control issue. They worked with their team and outside advisors and examined their finances. Two main reasons for the problem:

1. having too much inventory, which led to storage costs, and

2. paying more for their goods because of non-competitive sourcing methods.

Step 2: Develop a Plan to Tackle the Core of Your Cost Control Problem

Cozy Corners found the main issue and made a good plan. They made minor changes by using an inventory management system. They also looked for better suppliers with lower rates.

Step 3: Get Different Perspectives on the Cost Control Plan

They asked for opinions from employees, suppliers, and customers for their new plan. The employees gave useful information about what customers are buying. This helped improve the inventory system. They also talked to their suppliers about their challenges and found cheaper products.

Step 4: Communicate the Narrative Around Dealing with the Cost-Control Problem

Cozy Corners made a plan to control costs and talked about it with the whole team. They explained their financial struggles, what they were doing now, and what they hoped to do in the future. This helped everyone understand the changes and see the benefits. This made them more willing to accept them.

Step 5: Execute with Urgency

Cozy Corners acted quickly to control costs. They put an inventory management system and adjusted it based on feedback. They also finalised new procurement contracts. The leadership team addressed any obstacles to show that cost control was a priority.

Cozy Corners saved money for six months without losing revenue. This shows that small businesses can control their costs.

Recap

1. Identify the core of the cost control problem.
2. Develop a plan to tackle the core of your cost control problem.
3. Get different perspectives on the cost control plan.
4. Communicate the narrative around dealing with the cost-control problem.
5. Execute with urgency.

Conclusion

To control costs in SMEs, you only need a few resources or big changes. You need to take steps that work for your organisation’s specific challenges.

Small businesses can save money and improve their teams by following this method. It also helps ensure a stable financial future. Business leaders can solve problems like cost control with simple steps and clear focus.

About the Author

Ajibola Jinadu is a Fellow of the Association of Chartered Certified Accountants (ACCA). He is also a Fellow and the Institute of Chartered Accountants of Nigeria. He obtained his Bachelor of Science in Applied Accounting from Oxford Brookes University, UK. His professional experience includes an 8-year stint with Deloitte and 7 years as a CFO. He has collaborated with executive management to implement agile methodologies in capital expenditure strategies. He has introduced and maintained an agile approach to capital expenditure. This helped in increasing the company’s flexibility and responsiveness to market changes. Ajibola regularly contributes various business and finance publications on his website, myCFOng. He primarily writes about small business management and financial strategies. He is also a sought-after speaker at industry conferences. Ajibola often discusses agility and flexibility in small businesses’ financial planning. He is an expert in financial analysis, strategic planning, capital expenditure management, and agile methodologies.

myCFOng

Welcome to myCFOng, your premier destination for small business finance insights. Our team comprises proven experts in small business finance. Our contributors bring years of practical experience and theoretical knowledge.

At myCFOng, we pride ourselves on the rigorous quality of our content. Each article is well-researched, data-driven, and fact-checked to ensure we deliver only the most reliable and applicable insights. Industry leaders have shared and referenced our articles. This attests to our authoritative standing in the field.

At myCFOng, we strive to empower small businesses with the financial insights they need to thrive in today’s marketplace.

Disclaimer

This article intends to provide general information and does not constitute financial advice. The views, thoughts, and opinions expressed in the article belong solely to the author.

The content in this article should not be relied upon as a substitute for professional advice. Always seek the advice of a qualified professional or your independent financial advisor. This is for any questions regarding your financial situation or specific financial issues.