Cost Management is one of the paramount parts of our everyday life. On both the personal and professional fronts, we need to realise the relevance of managing our costs. Business entities including, accounting firms and outsourcing companies, know that their cost management strategies can make or break their enterprise. Running a business means incurring almost a never-ending trail of costs. We need to keep our costs under check to ensure our business remains profitable.

Robust cost management strategies are a vitality 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 that business entities implement to reduce their outlay and enhance the strategic position. It aims at handling the cost pattern of the business in a way that it gets in sync with the overall business strategy. It is also important to understand that cost management does not always mean cost reduction. Sometimes money needs to be spent for bettering the tactical business.

Relevance of Cost Management Strategies for Accounting Firms and CPAs

All accounting & CPA firms have to incur various fixed and variable costs to seamlessly deliver their services. These firms need to expend various overheads such as salaries, rent, and equipment purchases. As per the available capital and revenue, one needs to plan the money, which will get spent in the near future. In order to strengthen the profitability and growth of the business, management of administrative costs is quite crucial. It calls for determining the cost management strategies for your firm.

Drafting your cost management strategies is not a one time job. Most CPA practitioners and accounting firm owners would stand in agreement with the fact. The business entities need to keep iterating their cost strategies as per the evolving scenarios in the market. Improving the cost management strategies is an elemental facet of any business. In the competitive market of accounting and CPA firms, they 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 the cost management. Dig deeper to know about 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 your Business

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 make an assessment of the different alternatives available. Most business entities, primarily 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 the options entail unique sets of costs. Using opportunity cost method one can evaluate the two options and conclude the best decision. It is imperative to look for not just 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. Mostly, at the beginning of every financial period, budgets are pre-defined. They act as a 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. As business owners, you also need to understand the importance of revising the budgets as per any alterations in the business environment.

It is highly recommended to go for professional assistance or using 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 you 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 which are directly attributable to revenue generation such as wages to the workers. While, fixed expenses, are those outlays which are not directly linked to the sales of your entity. They remain an obligation even when you are not operational in most instances. 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 your earnings.

4) Duly determining the Break-Even Point for your Business

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. You 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 you the boost to expand your enterprise ahead.

5) Lowering the Fixed Costs, wherever possible

Fixed costs are obligations which are more static in nature. It is difficult to lower your fixed expense obligations once undertaken in contrast to variable costs. For accounting firms, specifically, in the USA and UK, fixed costs can be lowered to a considerable extent with outsourcing. You can reduce your rental and technology infrastructure investment with outsourcing. Revising the employee compensation plan and downsizing operations in the off-seasons are some notable tricks which you can consider.

6) Keeping the Variable overheads under control

Variable expenses as we know correspond greatly with the scale of your operations. However, you’re your business scales up your 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 check on the variable overheads. Look out for discount schemes for services hired and purchases made, wherever possible. Again, use of outsourcing services will lower the instance of high variable expenses such as labour. A curb on the excess variable expenses will enhance your 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. Accounting firms can employ expense tracking systems which can help to limit the spending of your entity. Most eminent expense tracking software, prove handy to get real-time updates about the expenses incurred and alert you about any deviances.

Infinity Globus services is here to provide exceptional assistance in the domain of managing your costs and finances!

Infinity Globus is a path-breaking outsourcing accounting company that is assisting accounting firms and CPAs. We provide stout assistance in various accounting and financial matters. Firms can use our outsourcing services to lower their hefty cost burdens. Make use of our impressive tax and accounting outsourcing assistance. Contact us now!