Without cost control, any individual economy or enterprise can easily lose its way. That is why in this note you will learn why it is important to manage cost accounting and how to optimize it for your business.
What is cost control?
One of the main concerns of every entrepreneur is the effort to get sales. However, knowing where the money goes is also key to properly managing resources.
Recording expenses, classifying them, analyzing their behavior, budgeting them and controlling deviations is essential for cost management.
So what is cost control? It is a process that allows identifying the expenses associated with the different processes necessary within a company.
Its objective is to design strategies related to money flows and investment at all levels, which allow organizations to make a conscious use and oriented to obtain a profit margin in accordance with their business model and objectives.
How are expenses classified?
Through the classification of costs it is possible to analyze their behavior. This allows you to manage savings and facilitates budgeting for healthy financial management. See how the different expenses are categorized.
Fixed costs
They are those costs that do not vary according to production volumes and are necessary for the basic operation of the company. That is, they must be paid whether or not they occur. For example: rent, insurance, administrative expenses, etc.
Variable expends
They vary with production volumes. If the level of activity increases, these expenses increase and if the activity decreases, they decrease. They can do it directly proportionally or not. For example, materials, labor, etc.
Semi-fixed expenses
They are variable costs, that is, they vary according to production volumes, but only for different sections of activity. Within certain activity volumes or fluctuation bands they remain fixed. For example, some public services or taxes.
Semi-variable expenses
They are those whose behavior is partially fixed and variable. That is, a fixed portion can be identified up to a certain level of production and a variable in its cost. They are also known as mixed costs. For example, certain shipping costs, some utilities or taxes, Internet costs, etc.
Direct costs
They are those that are identified in the manufacture of a finished product and are proportional to it. For example: raw materials, materials, production labor.
Indirect expenses
They are those that are not identified or cannot be assigned to the finished product. For example, electricity, electricity, rentals.
What is a cost center for expense control?
The cost centers are used to obtain the necessary reports and perform an analysis of the expenses. They allow you to track those costs associated with a specific function.
Any area of a company can be a cost center. You just need to have decision, control and responsibility.
In turn, the cost centers could be classified as main or auxiliary. The main ones are those that are directly involved in manufacturing. Auxiliaries include indirect costs.
How to optimize cost control?
To classify expenses it is first necessary to record them. It can be done through Excel or a management system such as Xubio. Digitizing the data makes it easier to obtain reports instantly for decision making. It also simplifies the possibility of locating a receipt and obtaining its data instantly, without having to resort to searching for the physical receipt.
Unlike an Excel, the implementation of a management solution allows you to manage a large amount of data, eliminate errors, duplications or waste of time and resources. Online solutions allow these objectives to be achieved with very low costs and data security.
How to do an analysis and control of expenses?
Once the expenses have been registered and classified by the cost center, it is time to analyze, manage and control them. Knowing the behavior of costs we can:
Budget
Planning is key to making plans for the future. It is a necessary control tool so as not to spend more resources than are available. It allows to know the fixed and variable expenses and to evaluate with what type of financing they will be covered.
Detect unnecessary expenses
When you identify which inputs are a priority and which are not, or what amounts of purchase are necessary, you can establish a savings strategy and avoid expenses that are not in the budget.
Lower sales prices or maximize profit
When savings are managed, sales prices can be reduced if they depend on a percentage of the cost, which generates greater competitiveness. The profit margin can also be increased if current prices are maintained.
Improve return on investment (ROI)
When you identify what you spend on, you can improve your efforts to intensify those expenses that collaborate with a better result. For example, investment in advertising by different media.
In conclusion
Any enterprise needs to know what it spends on in order to plan what it is going to invest in and ensure that it reaches its objectives over time. Having tools like Xubio that facilitate capturing the data to be analyzed and obtaining reports becomes essential when managing costs. A very simple way to manage expenses is to assign them to cost centers at the time of uploading the receipt. This will then allow all the analyzes and controls necessary for good management to be carried out.
Source: Ambito
