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How to Manage the Cost of your Business More Effectively

How to Manage the Cost of your Business More Effectively


Business is pretty is easy to understand, sales less costs equals profit. Business is as simple as this equation; everything in business boils down to this relationship.

If you want to succeed in your new business, work to increase sales relative to costs: £10million of sales with £10 million of costs makes the same profit as someone who has not started yet! This seems obvious to me, but the papers are continually full of companies throwing away millions on trial marketing campaigns, clearly not really knowing what they are doing. The problem is often that there is a separation from the managers who make those decisions and the people whose money is being spent.

In most entrepreneur based businesses, costs literally come out of the owner’s pocket. The owners are more inclined to be careful with their housekeeping. The so-called dot com boom in the 1990s was a break from this successful pattern.

As the internet was getting going, greedy investors were happy to put billions in the hands of twenty-something technical experts. Few of these people had any business experience. The result was a boom fuelled by a gold-rush mentality. Internet companies got a bad name and then they found it hard to raise capital.

Some critics considered that these boom/bust companies were never proper companies in the first place and wrongly gave bad press to the potential of all internet start-ups.

Think of a business as a giant bucket where the taps pour in liquid gold. Your objective is to have the taps on full while making sure that all the leaks are plugged.

I see so many businesses where they have only one of these things working. A well plugged bucket without the taps on will not fill up. Taps on full, with lots of holes in the bucket will equally not fill the bucket up. I have seen so many owners rushing to get more sales to maintain the level in their leaky bucket, when what they should be doing is managing their costs more effectively. The way to start doing this is by questioning each and every one of them.

Here are a few golden rules:

If you are going off course don’t keep drifting.

The purpose of a plan is far more than to raise money. Design it to be a compass that will steer you through every eventuality.

You should be constantly referring to your plan. Your time as an entrepreneur is your company’s greatest asset. Staying until the ship goes down can take forever and deny you the next opportunity. Stay focused on your long-term goal.

This sometimes means abandoning the direction you are going in. Entrepreneurs continually reinvent their companies and ideas. The main asset of the business is you, focus on that. If something has failed, the danger is in kidding yourself.

Don’t spend years drifting to a slow inevitable end, hoping for that big break, instead, take all that you have learned and make a better attempt next time.

Each failure is a step to success. Read the biographies of any famous entrepreneurs and you will realize that the secret of mirroring their success is not to be found in studying how they succeeded but how they reacted to their failures. Think of a failure as consultancy worth £100,000.

2.   Keep tabs on statistics.

Always know the statistics that are relevant to your business. Cash in and out, sources of sales enquiries, etc. To navigate your ship you have to have constant updates of a changing situation in order to make meaningful decisions.

3.   Opportunity seeking is constant.

Non-entrepreneurs think that we find an idea and then run with it. In reality you need to look constantly for new opportunities, new improvements. It is an attitude of mind to look constantly. Remember that often a failure can be the creative grounds for the next launch.

4.  If you believe in it, launch it.

Have you ever had a great idea and proudly told your friends of your innovation, then done nothing about it and actually watched somebody else do it and make it succeed? Entrepreneurs are not looking for their friends to admire then-ideas and intellect.

They are looking to change the world and make a pile of cash. If you keep throwing the dice a six must come up eventually. The good news is you are allowed as many throws as you want.

Published by Mark Stubbles

Guest post supplied by, business van insurance.

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