Small and medium enterprises (SMEs) can raise their profitability through targeted cost controlling and management. Accounting Software will deliver the necessary data for a sustainable cost management.
Small and medium enterprises will always have a disadvantage compared to their larger counterparts: they have to make do with less resources. This is true for human as well as monetary resources. This makes it extremely important for SMEs to put these limited resources to optimal use. But especially smaller firms tend to make mistakes when controlling and managing their costs. This has a negative impact on profitability.
Very often, the earnings are smaller than they could be. And since earnings are the lifeblood of every enterprise, cutting those off means certain death for the company. In order to introduce counter measures to avoid this, educated guesses aren’t enough. Diminishing returns calls for a more data driven approach to avoid problems with liquidity and – in the worst case – insolvency. To minimise these risks, SMEs need to monitor and analyse their costs on an ongoing basis.
Spotting Cost Drivers of the Business
If you want to increase your profitability, you need to get an overview over the current cost drivers. Costs and overheads should be assigned to cost centres. This can be done automatically by a variety of tools.
However, costs need not only to be tracked; it is also important that SMEs keep an eye on their inventory, raw materials and order fulfilment. This can be done with the help of smart workshop software, such as Katana. Good tools not only keep track of your stock, but they also keep inventory at optimal levels. Excess stock or inventory is oftentimes one of the biggest cost drivers for SMEs. Reordering materials too early or too late is another mistake that negatively affects profitability.
Business Cost Analysis
As we see, cost centre accounting is not the only solution to a profitability problem. Costs and revenues need to be analysed on a comprehensive level. Tools for financial accounting and inventory management can help. It is important to take the time to set up meaningful reports in order to spot causes for mismanaged costs.
These reports are also enablers for management to control different types of costs. Data quality therefore improves the quality of entrepreneurial decisions. When in need to cut costs, many SMEs make the mistake to cut costs equally across every department. Good data is the tool to avoid these mistakes and cut costs at those places that are actually not spending economically.
It is important to keep in mind that cost analysis and controlling should not be a one-off exercise. In order to have an effective long-term planning and to manage costs strategically, constant controlling and reporting is essential. The problem: integrating this type of controlling into the hectic day to day operations is often difficult.
Therefore, it is important to have a simple way to generate and evaluate reports and get an overview of the current inventory, orders and production status. Again, it is worth to invest some time and money upfront into proper tools to enable that kind of reporting. Many ERP or MRP solutions offer dashboards or cockpits that are able to visualise this data.