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#473: Use Your Accounting System to Control Costs

Posted By Mark Haas CMC FIMC, Wednesday, January 5, 2011
I run a small consulting firm and, like all businesses, am looking to better control costs. What are some ways other consultants are reducing their overhead?

Here are two quick (and admittedly oversimplified) approaches small businesses commonly use. First, understand what you are really spending on administration, since most small businesses really don't know. If you are not automating your costs so you can analyze them, do so now. Next, look back over the past year or two and determine what the trends in those costs have been, with a goal of predicting future costs. Finally, determine which costs are in control (i.e., predictable) and which ones are not. You need to be able to describe a process before predicting it and, in turn, predict it before controlling it. Only then can you decide whether (and how) to reduce those costs.

Second, set some priorities for reducing costs, but only the truly low value adding ones. Some businesses just "cut overhead costs" by a certain percent without understanding the effect this will have on their business. Almost every expense has some indirect value added, and cutting them just because they are "administrative" doesn't mean you will not affect your overall business performance. Assuming you can predict administrative costs, test the impact of cutting back on biggest ticket costs (e.g., are you really using all the features you are paying for?).

Tip: Consistent with your desire to control and reduce administrative costs, consider a service like Wave Accounting. Wave is an accounting service with a clever business model - it is a full featured, secure, online accounting system (similar to products like QuickBooks) that is totally free, paid for by targeted ads. Its regularly upgraded features and analytic capabilities will help you get control over your business costs. An automated accounting system will save you time by automatically downloading your credit card and banking data and provide you the ability to predict and control your costs.

© 2011 Institute of Management Consultants USA

Tags:  practice management 

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