Cost Control Guidance for Small Manufacturers

• A business makes money and prospers when it generates profits 

• Profits = Revenue minus Costs

• You need to take specific actions in several areas to generate good profits

• Improve Revenue Quality

• Control Costs, i.e.  Cost of Sales + Operating Expenses + Financing Charges + Depreciation of Operating Equipment + Taxes Paid to Government 

Read on to learn about the specific actions. 

Revenue Quality

• Are you tapping different sources of revenue, in addition to the most obvious source?

• Do you pay particular attention to make your customers happy with a quality product and quality service?

• Have you succeeded in minimizing returns and optimizing customer support costs?

Control Cost of Sales 

• Do you monitor, continuously using an appropriate system, how much material is consumed by each unit of your product, including wastage?

• Have you discussed and agreed  with your employees on the levels of productivity expected of them?

• Are there systems in place to monitor the power and fuel consumed during your operations?

• Are you able to locate dependable suppliers and negotiate reasonable terms with them?

• How are your logistics costs and deliveries efficiency?

Control Operating Expenses 

• Have you looked carefully at each item of operating expense, and assessed how each delivers a value to your business?

• Is there a system in place to actively encourage your employees to come up with cost saving suggestions?

• Expenses have a habit of creeping up almost without being noticed. Do you have any system to detect these invisible creeps?

• Have you explored the option of outsourcing non-core tasks to reduce related expenses?

Control Financing Charges 

• There are several alternatives to meet your funding needs. Have you selected the specific options that reduce your finance costs?

• Are systems and processes in place to ensure that your inventories are quickly turned into cash?

• Have you compared the costs of leasing needed equipment vis a vis buying these outright?

• Have you negotiated favorable credit terms from suppliers? And reviewed the credit terms you extend to customers?

Control Depreciation Costs 

• Are there underutilized or redundant equipment in your factory that do not generate good revenue?

• How high is the utilization of the production capacities you have created? Are the equipment lying idle most of the time?

• Preventive maintenance can prolong the life your equipment by years. Have you implemented a systematic preventive maintenance plan? 

Control Taxes 

• Are you aware of the different schemes under tax laws that help you save taxes legally? And explored the possibility of structuring your operations to take advantage of these? 

• Is your accounting system tailored to help you identify and claim all available tax deductions? Or is it a mess?

• Do you comply with all your tax-related obligations such as filing timely returns and deducting taxes at source?

• Do you work with a professional tax consultant who can help you with complex transactions?

Control Systems in Place? 

• Are you able to identify product wise costs, including share of indirect overhead costs? Without a clear cost picture, you might be incurring losses on some of the products. 

• Do your control systems provide correct data about material usage,  wastage and yield? And about worker productivity and overhead allocations? If overheads (indirect expenses) are allocated arbitrarily, it could generate misleading pictures of real product costs.

• Are systems in place to monitor trends in revenues and different elements of costs? These trends can alert you to any abnormal developments and enable you to identify reasons and take actions.

Cost Control Mini Audit Memo 

• Please click the button below, and complete and submit the contact form. We will then send you a Cost Control Diagnostic Form

• The diagnostic form lists the common areas that cause cost overruns. You review each area in the context of your business operations.

• After reviewing each area, you indicate whether that area is a problem area, or okay area. And submit the form by clicking the Submit button at the bottom

• We will review the details and send you our suggestions for working on the problem areas, and also our terms for working with you