Who does not want a healthy business from a financial point of view? It is necessary to make sure that there is cash at hand to face or resolve issues with debts, investments, and sharing profits among partners. Now, in order to attain this, one should have good planning and know the ways to handle company costs most efficiently.
You don’t need to be a financial genius to reach this conclusion. Since costs are largely responsible for the economic dynamics of companies.
The entire process, from production to purchase by the end consumer, is influenced by this value. Therefore, it is always interesting to control and reduce a company’s expenses.
Knowing this, it is common for entrepreneurs and even experienced managers to try to reduce this amount. However, not everyone has the analytical eye needed to see the real impact of each one on the company’s useful life or know how to reduce the amount without harming the business.
If you are part of this team or just want to delve deeper into the subject. Keep following today’s post and discover everything you need to know about costs to have excellent financial control !
1. Financial control in cost management
The name makes it clear: financial control is the management of all activities that involve money in a company – whether it is incoming or outgoing. It allows, among other things, to know the current liquidity and the assessment of the economic situation of the business.
For many managers, knowing where money is going within a business may seem like madness, but it is this type of careful control that allows for safe growth planning.
After all, when you know how much of your revenue is compromised. You won’t take a step too far in your company.
This is done by carefully recording and analyzing the income and expenses of a business. Each bill paid must be specified and, if possible, linked to the department responsible.
Much of this control is already done due to accounting reporting obligations. However, good management is not about working to produce income statements and balance sheets, but about putting them to work for you.
Those who have difficulty in having an overview of the business can segment financial control into smaller parts, making it easier to understand. Check out the suggested controls:
- box;
- bank;
- accounts receivable;
- accounts payable;
- cash flow.
By dividing it this way. It is easy to understand how much the company is spending, how much it is receiving and, most importantly, whether it has the money to pay off all its debts.
Additionally, you can focus on accounts payable to manage your finances more efficiently.
1.1. The role of cost management
When there is knowledge of how the company spends its money, the entrepreneur can have an overview of the costs in his mind.
This way, you can plan more efficiently, not only for purchases from suppliers, for example, but also for investments of the company’s capital.
However, when cost management is not done correctly or, even worse, ignored by the finance team. It can have serious consequences for the economic health of a business – such as over-indebtedness, difficulty in achieving goals and even a reduction in overall productivity.
Controlling company expenses goes far beyond knowing which bills are being paid. It means seeing each investment made and understanding the results it brings.
When done this way, management enables an interesting change of perspective for the entrepreneur, as he discovers where it is worth putting money in and where it needs to be taken out.
This creates opportunities for cost reduction, which can be achieved with the help of financial indicators . Within production, it quickly becomes clear which sectors can produce more with less, without affecting the quality of the product offered.
Another very important aspect of cost management is fees and charges. This type of expense often goes unnoticed when controlling financial operations, as it is mandatory.
But can these values not be revised in negotiations with the bank? Is the tax regime in which the company operates the most appropriate?
All these questions only arise with intense care from the cost department. The good news is that the answer to most of the financial problems a company may have is also there.
In other words: a more careful look can guarantee more business intelligence and the competitiveness that the company so seeks.
2. Financial planning in cost management
In this scenario, it is almost impossible not to address the issue of planning. This is because, although it is useful, simply controlling the money that comes in and goes out does not help you to outline strategies to put your company on the strategic plan you want – which is only possible with organization and goals.
With cost and cash flow management, it becomes possible to draw up an average monthly revenue and expenses. These numbers will be used to plan the company’s finances, creating achievable goals and guiding the actions that make them a reality.
Furthermore, when a business has efficient cost management, it is possible to know exactly the level of debt in the short and long term, making clear the efforts that need to be made to pay off these debts.
It is important to remember that when we talk about debt, we are not only referring to possible financing with the bank. All third-party capital invested in a company, including installment purchases with suppliers, must be included in this amount.
2.2. In search of solvency
It is normal to go through periods of crisis, after all, there is no 100% stable business in a world that is constantly changing.
However, it is possible to have a reserve to overcome adversity, as well as to predict negative market movements. And this characteristic also helps in credit negotiations.
To find out if your company is doing well, financial institutions and even suppliers want much more than a positive balance in the current account and an impressive headquarters – they want to know how your company’s financial health is doing.
Therefore, liquidity and working capital will be assessed in credit applications. Anyone who wants to expand their business and needs help to finance this progress will certainly need to go through this and prove that they are capable of honoring all their obligations.
3. Optimization tips
When the entrepreneur has a good view of the company’s financial situation and clear goals to achieve in order to carry out the planning, the time comes to review costs and try to reduce them to increase the profitability of the sectors – and, consequently, profit .
Analyze each of these ideas and find out if they can be applied in your case:
- Record financial transactions: Recording transactions is the basis for all of a company’s financial actions and, despite its importance, is often ignored by managers. Don’t make this basic mistake, because without these records, understanding the business situation becomes almost impossible.
- Negotiate with suppliers: with planning in hand, it is possible to predict which months will have a more difficult financial situation and ask for special payment terms when purchasing raw materials, especially if the quantity is large. Whenever possible, have more than one supplier, as this helps to have more room for negotiation. When the company is in debt, it is also advisable to renegotiate overdue installments so that this does not harm your company’s name in the market and, who knows, avoid paying fines and late fees.
- Pay your bills on time: Financial planning generally includes all of the company’s obligations divided by month.
- Ask for discounts: the habit of trying to get a lower price for goods, raw materials and supplies makes all the difference in the company’s annual profitability. If there is the possibility of advancing a payment scheduled for the future, you can also negotiate a discount with the supplier.
- Look for the lowest interest rates: especially for those who are in debt, this habit can make all the difference in cash flow. When applying for a loan from a bank, evaluate the rates offered. Do you owe a supplier? Find out if it is worth taking out a loan from the bank and paying it off.
- Review the tax system: when we talk about the taxes paid by a company, we must remember that Real Profit and Presumed Profit have a real impact on the amount paid. The best way to find out which is the most viable for your company is to analyze its financial situation. Believe me: this can save the business a lot!
4. Cost management tools
Trying to control a company’s finances without the help of any tool is practically impossible. However, with some tools that are already part of a business owner’s routine, everything becomes simpler and much more efficient. Check it out:
4.1. Company budget
Budget is another name used to designate financial planning, that is, the advance planning of the company’s expenses and income.
It will be used as a guide in the company’s management. As its needs require actions that intensify cost cutting or increased revenue, for example.
4.2. Cash flow
Cash flow is one of the most used tools by cost managers, as it controls the money coming in and going out in detail.
As it is responsible for recording this movement. It shows unexpected and recurring costs, helping to better plan the use of the company’s assets.
4.3. Financial statements
Many companies view the need to send the Income Statement (DRE) and the Balance Sheet as a mere bureaucratic formality.
However, they offer multiple possibilities for assessing the financial health of a business, especially when done correctly.
Using these statements, it is possible to calculate, for example, whether a company has been taking on debt in recent periods.
When there is growth in revenue. They show whether it was driven by equity or third-party capital, revealing debt.
Furthermore, the balance sheet also calculates liquidity, which is an estimate, normally expressed in days, of how long it would take the company to settle all obligations that exceed the value of its assets.
4.4. Finance software
Some companies, especially smaller ones, use Excel to manage their finances. Although the program has interesting tools that help with customization as needed. It leaves room for many errors, since the process is entirely manual.
Having suitable software for each type of company helps with financial management and, subsequently, cost management.
With them, it is easier to consult releases. Check outstanding debts and many even offer graphs with expense analysis, helping the decision-making process.
Whenever possible, it is recommended to also have integrated business management control software (ERP), which makes the budget easier to handle and also promotes the integration of all sectors of the business through its modules.
Regardless of what your company needs. It is always worth investing in technology to facilitate processes and make financial control more reliable.
There are several products for this purpose on the software market. Find the one that offers the best cost-benefit to professionalize your company’s management.
5. The importance of cost management in times of recession
It is no wonder that concerns about cost management become more common in periods of weak economy and low consumption. After all, the goal of every business is to sell, and if customers do not buy. There is a chance that good businesses will go bankrupt financially.
In these phases, what separates companies that manage to survive the crisis from the rest is financial control. However, companies that did not have this habit when the economy was booming need not worry, because there is another path that can be followed: the strategic use of cost management.
If increasing revenue is out of the question. The way to maintain the profit margin at a comfortable percentage is to reduce the money spent within the company.
At this time, accountants, administrators, economists and businesspeople come together with a single objective. To cut activities that do not generate profit and superfluous expenses.
Many employees see this movement as something negative, after all, it is clear that the company is not going through good times. However, this type of adjustment is essential to have a long-lasting and economically healthy business.
If the Government itself uses measures of this type to recover during the recession. It is only natural that companies concerned about remaining solvent follow this movement.
5.1 Where to cut costs during a recession
To make efficient cost cuts, you need to take a careful look at your company. The most natural approach for business owners is to review their payroll, which has a very high tax rate, and employee benefits.
However, this movement can be demotivating for workers. Leading to a drop in production at a critical time.
The safest and most efficient ways to reduce a company’s obligations are:
- Investigate possible innovations in production: review processes and ask employees if they have ideas on how to make day-to-day operations simpler and less costly. Many of these ideas are lost for fear of not being heard by superiors, and they can result in huge savings.
- Hunt for unforeseen expenses: as soon as you close the month’s results, analyze all payments that were not in the budget. They may reveal an old machine that has a high maintenance fee, to the point that it is worth replacing it. Or show that a sector is spending more than it should, making it necessary to highlight the company’s economic policies.
- Propose cost-cutting goals: Although they are more associated with growth, goals can and should be used to promote savings within the workplace. Let employees themselves propose where these cuts can be made. As they know better than anyone what is essential in their work.
- Review old contracts: Over time, the price of products and services provided under contract is usually adjusted using a price index. Such as the IGPM (General Price Index) and inflation. However, it is not uncommon for this increase to be greater than the market value. Causing you to pay more for the same service.
Look for contracts that fit this case and renegotiate the amounts. If necessary, it is worth asking for quotes from competing companies. In times of recession, wasting money out of habit is just asking for your business to collapse.
Throughout this guide, you understood a little more about the importance of maintaining financial control of your company. As this is the only way to avoid debt and know the right time to grow.