Dealing with the financial aspects of running a business is challenging. On average, small business owners in the Philippines spend around ₱85,351 during their first few months of operations. This includes fixed costs of compliance, such as with the Bureau of Internal Revenue (BIR) and local government units, and regular expenditures like office supplies and utilities.
Regardless of your industry, having a solid cost management plan is essential to maintaining your operations long-term. While many believe this is a way to reduce costs, small businesses can use this to improve their management strategies.
To best understand how these approaches work, you need to take a deeper look into what strategic cost management looks like.
What is Strategic Cost Management?
Strategic cost management refers to lowering the total costs of your operations while improving your company’s overall standing. Simultaneously, it also focuses more on your objectives by having a deeper understanding of what costs support your strategy most to achieve your desired financial health for your business.
Often, the process is established to help determine what expenses have the least impact on your operations. Once identified, it can be removed to provide your company more room for improvements, giving your brand a better edge against competitors in the industry.
Compared to traditional methods, strategic cost management centers on your entire operations rather than just the short-term concepts in the business, drawing extensive solutions to your budgetary control.
Why is Strategic Cost Management Important for Small Businesses?
Small businesses have limited resources compared to established large enterprises. As such, it is important to be vigilant about your expenses and learn effective ways to keep costs down without compromising output quality.
Here are some other reasons why having a strategic cost management plan is a necessity:
- It provides a better understanding of the business’s cost structure
Cost structure shows you the allocation of resources within your small business, whether fixed or variable expenses. A strategic cost management plan allows you to look into this better, optimizing your full value chain and ensuring a stable and sustainable operation run.
- It relates cost to the operation’s value chain activities
Knowing the value of each cost can help you determine how it affects your operations. If the impact of an expense is not as efficient as others, it can be cut off and lead to more savings.
- It focuses on continuous enhancement for operational efficiency
Strategic cost management is a long-term approach to minimizing your internal and external business expenditures. It also allows your enterprise to adapt more seamlessly to a changing environment, especially now that most brands are getting new customers on multiple digital channels.
- It streamlines the tools and technology used
With the right strategic cost management plan, you become more available to accessing different tools to help grow your company. In the case of small businesses, there is a list of technologies you can utilize to maximize your operations, where implementation needs to be budgeted accordingly.
- It allows you to outsource projects more easily
When mapping out a strategic cost management plan, you may see that not all tasks require in-house employees. Rather than hiring full-time workers, small businesses can further cut costs by outsourcing accounting and finance experts, opening up a new set of possibilities for the brand.
5 Effective Strategic Cost Management Tips for Small Businesses in the Philippines
There are many ways you can adopt strategic cost management practices into your operations. Below are tips to keep in mind for your small business:
- Outline your fixed and variable expenses clearly
Determining your operating expenses according to these factors will help you gain more flexibility with allocating your resources, giving you an idea of what costs can be adjusted and what cannot.
Common fixed operating expenses for small businesses include rent, wages, salaries, and utilities. Meanwhile, production supplies, commissions, and credit card fees fall under variable costs.
- Minimize your overhead costs
Figure out the minimum amount to run your business without hurting the quality of your work. List elements in your overall operations that your business can do without, and focus on maintaining others that aid in generating revenue for your brand.
Controlling overhead costs could be as simple as going paperless on daily transactions, which saves your business from stocking up on office paper supplies, or embracing a remote work setup to limit physical office use, which comes with rent and other utility bills.
- Invest in reliable accounting software
Small businesses rely on technology to automate and streamline their processes, including their cost management efforts. In fact, 64.4% of small business owners are using accounting software today.
When incorporating a tool into your operations, make sure it has the following features:
- Seamless analysis and reporting
- Error detection and prevention
- Flexibility and scalability
- Strong data security
With the right tools in your enterprise, you can free up more resources and build a more efficient operating process for your company.
- Communicate your strategies across the team
Clearly express the company’s goals and expectations to all parts of your business. Doing so will allow everyone in your team to share the same objective and encourage wiser budget use.
- Consider outsourcing services
There are pros to onboarding and training in-house talents, but cost-wise, it is not as favorable as opting for outsourced services. Consider outsourcing parts of your operation, such as accounting, bookkeeping, and other finance functions, to professionals to make the most of your operational budget without sacrificing the quality of work.
Enter the Market with Confidence
Finances act as the lifeblood of your company. Without it, you cannot fund critical aspects of your business processes. But because small businesses also have limited financial resources, it is important to know how you can manage them wisely with the use of a strategic cost management plan.
While adopting this approach can improve your cash flow and output, it can sometimes be challenging. For an end-to-end online accounting and finance solution fit for your small business, look no further than CloudCfo!
CloudCfo is a cloud accounting firm for startups and SMEs in the Philippines that can assist your financial planning and budgeting responsibilities, helping you build and scale your company’s finance function.
To learn more about how our services can help you, reach out to our team today!