You’ve had a tough three or four years but you succeeded in cutting some of your costs to survive the long recession.Now things are looking a little better and you’re starting to relax.That’s OK, but don’t relax too much.

There is a natural tendency to let go of the controls you may have installed.Don’t let it happen!With higher inflation looming on the horizon, you must be more cost conscious.In addition, the Federal Reserve will most likely continue to increase rates, raising the costs of borrowing if you do have a cash short-fall.

You can still enjoy the fruits of the improving economy by continuing to be vigilant, staying on top of your business.Even small businesses can and should prepare short and long-term budgets and stick to them.Actual vs. budgeted expenses should be reviewed on a monthly and year-to-date basis by account number.Immediate action should then be taken on expenses that are over budget.Projected cash flow calculations for each of the next twelve months are also vital to the control of your business.“Cash is king”, so monitor it closely.

Businesses do differ but all businesses, even non-profit organizations, have revenue and expenses.Depending on your business, practice, or other type of organization, think creatively about how your costs can be controlled in an inflationary environment.Here are some examples of cost control possibilities:

·A home delivery retailer such as a florist or dry cleaner can cut gasoline costs by more careful delivery planning.Routes can be tentatively planned for maximum efficiency several days in advance, and then adjusted as new orders are received.With systematic planning, this data base can go even farther to reduce costs.Customers can be asked if their orders can be delivered earlier or later to reduce mileage and increase delivery efficiency.  Most customers can be flexible in their delivery needs.

·Pacific Electric and Gas Co. told the Wall Street Journal recently that turning off lights in unoccupied areas can save as much as 20% on a company’s lighting costs, and reducing the thermostat by one degree can cut 5% from monthly heating and cooling bills.Depending on the size of your facility, these can be high dollar cost savers.Some employees may think you’re becoming tightfisted, but your effective management of costs means secure jobs for them.

·High scrap and rework rates, or high service error rates in your operations result in costs that add no value to your product or service.Prices often can’t be raised to cover these extra costs and still be competitive.Why let these errors reduce your profitability?Special analytical tools such as Six Sigma can be employed to root out the causes of defective performance and control the process on a permanent basis.

·Take a hard look at any “loss leaders” you may have.Unless there are very compelling reasons for keeping these unprofitable products, drop them as soon as possible and concentrate your efforts on more profitable products and services. The easiest way to make money is to stop losing it!Again, profit is the key to a healthy business over the long haul.

·The productivity of your employees is also a key factor in continuing profitability.Federal Reserve Chairman, Alan Greenspan, said recently that productivity is not keeping up with recent increases in hourly compensation, sending “unit labor costs” higher.This results in lower profit margins.Measuring productivity is essential to the financial control of your operations.

Remember; stay focused on your cost control efforts as the economy improves.You are not in business to lose money; let your competitors do that!Often, owners and managers are too close to the business or too busy “fighting fires” to see the cost savings possible. That’s when it makes sense to have expert business advisors review your operations on a controlled, systematic, and confidential basis.The payback can be substantial.In any event, try to look objectively and closely at the details of your operations.There’s money to be made right under your eyes!

C. Bernard Huesing Copr. 2004 by C. B. Huesing

Bernie Huesing is an Advisor with OnCallPSN—Professional Service Network.He can be reached at cbhuesing@oncallpsn.com or (260) 407-1739.