Cost Management is one of the paramount parts of our everyday life. On both the personal and professional fronts, we need to realize the relevance of managing costs. As a CPA or accounting firm owner, you know that your cost management strategies can make or break your enterprise. Running a business means incurring almost a never-ending trail of costs. You always need to keep costs under check to ensure that your firm remains profitable. Robust cost management strategies are vital to sustain a business enterprise in the long run. Drafting elaborate cost management plans and implementing them is no cakewalk. It requires specific prowess in the field of costing and finance. Cost Management Strategies come under the broad umbrella of Strategic Cost Management.
A Brief about Strategic Cost Management
Strategic Cost Management (SCM) is a technique business entities implement to reduce their outlay and enhance their strategic position. It aims at handling the cost pattern of the entity in such a way that it gets in sync with the overall business strategy. The cost management does not always mean cost reduction. Sometimes money needs to be spent in to increase the profitability.
Relevance of Cost Management Strategies for CPA & Accounting Firms
Cost management strategies are important for CPA and accounting firms in order to maintain profitability and competitiveness in their market. It is also important to carefully track costs and financial performance and identify opportunities for cost savings. It may involve conducting a cost-benefit analysis for different activities and initiatives, regularly reviewing expenses, and identifying areas where costs can be reduced. By effectively managing costs, firms can increase efficiency, avoid unnecessary expenses, and improve the bottom line. Effective cost management can also involve finding ways to generate additional revenue through new services or expanding existing services to new clients. This can help offset the costs of running a CPA or accounting firm and allow the business to remain competitive in the market. Drafting a firm’s cost management strategies is not a one-time job. Most CPA practitioners and accounting firm owners stand in agreement with this fact. You need to keep iterating your cost strategies as per the evolving scenarios in the market. Improving cost management strategies is an elemental facet of any business. In the competitive market of CPA and accounting firms, strategies play a significant role to keep an edge. Being one of the leading outsourcing entities, Infinity Globus itself has in effect some time-tested tips for improving cost management. Dig deeper to know how you can set out to improve the cost management strategies for your firm. These guidelines will act as an enabler for boosting the strategic position of your business.
Improving the Cost Management Strategies of CPA & Accounting Firms
1) Analysing the Opportunity Costs
Opportunity cost is a concept which widely used in strategic decision-making. While planning out the tangible and intangible costs, you need to assess alternatives available. Most business entities, like small scaled accounting firms, have a restricted supply of financial resources. Using the opportunity costs of every cost head of your operation, you can make the most practical and valuable choice. For instance, one of the decisive factors for many accounting firms is the decision between insourcing and outsourcing accounting services. Both options entail unique sets of costs. Using opportunity cost analysis, you can evaluate the two options and conclude the best decision. It is imperative to look for not just the monetary benefit of every alternative but also the intangible value derivable in the future.
2) Proper Budgeting
Budgeting is a fundamental part of every business operation. The process of devising a monetary plan for a given period is budgeting. Budgets are generally pre-defined at the beginning of every financial period. They act as means to ensure that costs do not override the plans. It is important to prevent deviations from the planned costs to ensure sustainability and profitability. CPA & Accounting Firm owners need to understand the importance of revising the budgets as per alterations in the business environment. It is highly recommended to use professional assistance or renowned budgeting software. This measure aids in creating more viable budgets. You can get instant reports and analysis about the actual and budgeted costs for a stated duration. It will help get insights for determining the future course of action.
3) Clearly outline the fixed and variable expenses incurred
Division of the total expenses at the start of a given period is necessary. Variable expenses are those costs that are directly attributable to revenue generation such as wages to the staff. While, fixed expenses are those outlays which are not directly linked to the sales of the entity. They remain an obligation even when the firm is not operational. Fixed expenses include interest on loans and rental expenses. A clear demarcation between the two major cost variants will help in preparing better budgets and conscious allocation of earnings.
4) Duly determining the Break-Even Point for your Business
The Break-Even Point (BEP) is a figure a business finalizes to know at what level of operations they shall attain a no-profit and no-loss situation. CPA & Accounting Firms need to smartly come down to a break-even point to enable better decision-making. If you determine the break-even point too low or too high, you would not find an actual picture of your business functioning. Especially, in the initial stages of your accounting firm, correctly estimating the Break-even point will help you become a profitable venture earlier. It will give the boost to expand your enterprise ahead.
5) Lowering the Fixed Costs, wherever possible
Fixed costs are obligations that are more static in nature. Contrast to variable costs, it is difficult to reduce fixed expense obligations once undertaken. For CPA and accounting firms, specifically, in the USA and UK, fixed costs can be lowered to a considerable extent with outsourcing. You can reduce rental and technology infrastructure investment with outsourcing. Revising the employee compensation plan and downsizing operations in the off-seasons are some tricks you can consider.
6) Keeping the Variable overheads under control
Variable expenses correspond highly with the scale of the firm’s operations. However, if the firm scales up, the variable costs do not have to rise at the same pace. Variable costs form a major part of the overall outlay of the business. You can take some noted steps to keep a track on the variable overheads. You can look for discount schemes for services hired and purchases made, wherever possible. Again, outsourcing services will lower the instance of high variable expenses such as labor. A curb on the excess variable expenses will enhance profits to a great extent.
7) Upgrade to a reliable expense management software
We are now seeing the arrival of hi-tech software systems powered by Artificial intelligence and Machine Learning Technologies. They can provide immense backing in creating and improving the cost management strategies of your business. CPA and Accounting firms can employ expense tracking systems that can help limit the expenditure of the firm. Most eminent expense tracking software prove handy to get real-time updates about the expenses incurred and alert them about any deviances. Some examples of expense management software are Expensify, Divvypay, and Zoho Expense. There are many other software available in the market, which you can use as per your firm’s size and requirements.
Infinity Globus is here to provide exceptional assistance in the domain of managing your costs and finances!
Infinity Globus is a path-breaking outsourcing accounting company assisting accounting firms and CPAs. We provide stout assistance in various accounting and financial matters. CPA and Accounting firms can use our outsourcing services to lower their hefty cost burdens. To use our impressive tax and accounting outsourcing assistance, Contact us now!