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Expenses
and sales have an intimate relationship. Knowing how your costs move will
help you control your cash flow and project your future.
Fixed
costs remain relatively constant in the short term. Gradually as sales
increase to higher levels, your fixed costs will grow.
As
your business grows you may have to acquire more space. This is true of
vehicle ownership, insurance, employee benefits and telephone line charges.
To
control these expenses, delay increases as long as possible and make the
expansions as small as practical. Some additional control methods include:
When
sales increase, variable expenses per unit remain the same, but total
costs rise with sales. Some strategies for controlling this relationship
include:
Efficient
manufacturing to reduce material or labor costs.
Proper
scheduling to reduce expensive rush delivery charges.
For
highly variable cost changes that may be affected by weather, gasoline
prices, or factors outside of your control, maintain your profits by
promptly passing cost increases and decreases to your buyers. Your strategy
with more predictable seasonal cost changes can include adding inventory in
low periods and capping anticipated increases through the futures markets.
Remember
to involve everyone in cost control. Assign specific expenses to certain
managers, individuals or teams. Share your financial statements with your
team.
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