The Benefits of Effective Cost Control & Spend Management in 2024

The pursuit of profit is the single-minded objective of getting into a business. While a lot of factors come into play in helping improve profit-making margins, such as taking into account the latest trends and findings on business intelligence, the topics of cost control and spend management are among the most-mentioned buzzwords, and for good reasons.  

While first-year survival statistics from 2015-2016 showed encouraging trends for small businesses, the rate of business closures is not as bright, with 396,000 against 414,000 startups. It’s true that companies of all sizes can reap the benefits of cost control and spend management, but it’s even more vital for small- to medium-sized businesses, which lack the large capital of the big players, to begin with.

It is here where the purpose of cost control becomes even more meaningful–to be able to survive or even thrive in a challenging economy. This article spells out the benefits of cost control and shows why a great part of your success with it rests on using reliable procurement software. 

Forget about the digressing debate on how to open up new revenue streams: to cut costs or to increase revenue? You need to do both.

Cutting costs can lead to diminished sales and lower profit margins in the event of sustained market share loss.  On the other hand, more sales can increase costs, hence, does not guarantee larger profit margins.  It is by striking a balance that you will realize an optimal ROI. That’s why, in the last couple of years, cost management remains a business imperative as a recent survey shows with 71% of companies surveyed aiming to implement cost management strategies in the next two years.

Should you decide to take the cost control route, having good visibility of your ongoing expenses becomes a must. Advanced digital tools like Tradogram can go a long way in providing you better insights on how to implement proper cost control and spend management no matter the size of business you’re running. And of course, other tools like smart budgeting software solutions can also help in reinforcing the benefits of cost control software.

Tradogram

Try out Tradogram with their free trial

10 Key Cost Control Benefits

Cost control is the term used to refer to the process of reducing costs in a way that still lets the business perform at a functional level. It’s not rocket science to deduce that keeping costs down is a way of hiking up profits, among many other benefits such as the following:

1. Manage company debts. Minimizing costs can mean having extra money to service loans or reinvest in the business
2. Hike up budgets. Saving up monies can translate to having a bigger budget at your disposal for other things like marketing or advertising.
3. Improve credit rating and worthiness. Reducing your expenses can free up money for paying debt and improving your debt-to-equity ratio. That way, getting loans to scale up in the future will be easier.
4. Be competitive and stay competitive. Having a bit more money to hire better workers or invest in new tools and equipment can help give you an edge over the competition.
5. Uplift employee morale. Minimizing costs can mean more finances to grow the company. A thriving business can uplift the morale of your employees, which, in the longer term, can mean better employee retention levels.
6. Improve productivity. Improved employee morale can translate to a more inspired workforce and, consequently, improved productivity.
7. Help hike up wages. Freeing up money by minimizing ongoing expenses means more money to reallocate to employee salaries.
8. Aid in hiring better workers. With more hiring budget at your disposal, you can scale up your operations and hire good quality workers.
9. Give you a better view of budgets. When implemented correctly, cost control can give you a more realistic grasp of what your expenses are and what you can cut without harming your company’s productivity. 
10. Tell you what your productivity levels need to be. Knowing your real expenses can help you arrive at the numbers your business needs to achieve, productivity-wise.

With Tradogram, keeping track of inventory and reorders is a cinch

5 Key Benefits of Cost Control to Small Businesses

Is cost control a tool just for big businesses? The fact is, the smaller the business, the more crucial it is to implement proper cost control strategies. When you have much less capital and liquidity to speak of, minimizing expenses can indeed become a matter of survival. Especially since statistics reveal that 33% of small businesses do suffer from lack of capital and cash flow, the most prevalent of their reported problems.

Small businesses and companies stand to gain much from cost control with some of the benefits beyond the obvious financial wherewithal:

1. The building of stronger ties with suppliers. Freeing up money elsewhere can give you the ability to pay your invoices with suppliers sooner than later. Simply put, it’s the easiest way to foster goodwill with them.
2. The hiring of more qualified employees. Minimizing ongoing expenses means you’re able to recruit better quality workers and staff. Imagine what this can do to your company’s productivity levels.
3. An effective hedge against future layoffs. Having employed better quality workers is your protection against having to layoff ineffective staff in the future when tougher times may compel you to take drastic cost-cutting steps.
4. Improved contract negotiations with vendors. Having a bit more budget means being able to have a better standing as far as vendor payments are concerned. This translates to having a bit more leeway to negotiate better contract terms.
5. Ability to grow aspects of your business. Taking a look at your company expenses and freeing up some extra money can help you upgrade aspects of your business, like doing small physical improvements, adding a bit more volume to inventories, etc.

Tradogram software allows customization of reports for easy sharing

The Benefits of Digital Tools for Improving Cost Control

It is important to gain better visibility of your spend and cost expenditures since you need to know all the details before you decide on which costs to reduce and which ones to keep as is. And this is an area where a capable digital workflow tool like Tradogram can help. Such a software platform can improve your purchasing workflow as well as oversee and manage all the important stages of your business purchasing workflow with its ideal procurement management software features: 

• Purchasing. This covers the range of steps starting with the requisition, approval of the request, purchase, receiving, payment, and documentation.
• Sourcing. This allows you to carefully structure your sourcing plan, file requests, evaluate the negotiation process, aid in the awarding of deals, and document the sourcing process.
• Supplier management. The feature simplifies multiple vendor management with a handy listing of approved suppliers and their details, helps you evaluate your suppliers, and facilitates the handling of the procurement collaboration with centralized supplier communications.
• Contract management. It assists in drafting, creating, and storing of contracts; save costs by creating purchase orders from a contract repository; keep track of contract performance; help in renewing or terminating contracts by providing vital information.
• Spend Management. Your digital tool should give you full spend visibility by tracking budget and project costs as well as help you identify new ways to save with customer spend reports and analytics.
• Order Management. A useful digital platform should be able to generate sales quotes and manage orders by tracking sales activity and manage client responses, among other ordering tasks. 

Common Challenges in Implementing Cost Control Measures

Effective cost control measures are crucial for organizations to maintain profitability and financial health. However, several challenges can hinder successful implementation. Here are some of the most common obstacles businesses face:

• Resistance to Change: Employees and management may resist new cost control initiatives, especially if they involve altering established processes or workflows. Overcoming this resistance requires clear communication about the benefits and involving key stakeholders in the planning process to ensure buy-in.
• Lack of Accurate Data: Effective cost control depends on accurate, up-to-date expenses and resource usage data. If businesses lack the tools or systems to track spending properly, it becomes difficult to identify areas for improvement. Inadequate data collection can result in poor decision-making or missed opportunities for cost reduction.
• Ineffective Budgeting and Forecasting: Businesses may struggle to allocate resources efficiently without proper budgeting and forecasting. Inaccurate or overly optimistic forecasts can lead to overspending. At the same time, inadequate budgeting may leave crucial areas underfunded, undermining cost control efforts.
• Poor Communication Across Departments: Cost control measures often require coordination across different departments. If communication is lacking between teams (e.g., finance, procurement, operations), it can result in inefficiencies, duplicated efforts, and missed opportunities for cost savings.
• Short-Term Focus Over Long-Term Strategy: Focusing only on immediate cost savings can be detrimental in the long run. While addressing urgent cost concerns is essential, sustainable cost control requires a balanced approach that includes long-term financial planning and investments in efficiency improvements.
• Insufficient Training and Awareness: Employees at all levels need to understand the importance of cost control and how their actions impact the company’s finances. Without adequate training and financial awareness, cost-conscious behavior may not be ingrained in the organization’s culture, hindering long-term success.

Cost Reduction vs. Cost Control: What’s the Difference?

At a time when it seems that “Reduce All Costs” is the default business battle cry, it’s timely to discern what makes cost control different from cost reduction and why it’s crucial to know. There’s little to separate the two, save for the execution or implementation. Cost control vs. cost reduction–understand the difference and get ahead in the game.

Cost reduction involves the following things:

• Making either long-lasting or permanent cuts to ongoing expenses
• It usually has more drastic and disruptive effects, especially where it concerns the operational flow. 
• It also has deep, toxic effects on the people concerned–loss of morale on the part of the employees, and eventual dissatisfaction of customers, which happens when the quality of service eventually suffers.

On the other hand, cost control is about these:

• It also deals with reductions in expenses but uses data analysis and insights for a more informed set of actions.  
• It can also be in the form of a more proactive type of planning before making what could turn out to be “bad” investments or an inefficient spend.

Cost Control Isn’t Just a Buzzword, But Growth Enablers

It would even be better if your digital tool of choice can also orchestrate team collaboration apart from overseeing your company’s purchasing activities, the way the Tradogram software can. Having a single platform to accomplish all the needed tasks to implement proper cost controls for your business can eliminate confusion, simplify usage, and encourage greater collaboration among your staff. 

Cost control and spend management are not just buzzwords meant for the big players. With the help of smart digital tools and solutions like Tradogram, you can put them to good use for your business to grow and thrive, no matter the economic climate may be.

Key Insights

• Critical Role in Survival: For small- to medium-sized businesses, cost control and spend management are essential for survival and thriving in a competitive market.
• Balancing Act: Both cutting costs and increasing revenue are necessary for optimal ROI. Effective cost management helps in striking this balance.
• Global Trends: A significant portion of companies (71%) are planning to implement cost management strategies within the next two years, highlighting its importance.
• Debt Management: Effective cost control helps in managing company debts and improving creditworthiness, making future loans easier to secure.
• Employee Benefits: Cost control can uplift employee morale, improve productivity, and facilitate better wage allocation and hiring practices.
• Supplier Relationships: It helps build stronger ties with suppliers by enabling timely invoice payments and fostering goodwill.
• Digital Tools: Advanced digital tools like Tradogram provide better insights and manage all stages of the purchasing workflow, from requisition to order management.
• Contract Management: Digital platforms assist in drafting, storing, and managing contracts, ensuring cost-effective procurement processes.
• Spend Visibility: Tools offer full spend visibility, tracking budgets, project costs, and identifying new savings opportunities through spend reports and analytics.
• Proactive Planning: Cost control involves proactive planning using data analysis to make informed decisions and avoid inefficient spending.

FAQ

1. What is the primary objective of cost control in business? The primary objective of cost control in business is to reduce expenses in a way that still allows the business to operate efficiently, thereby increasing profitability.
2. Why is cost control particularly important for small businesses? Small businesses typically have less capital and liquidity compared to larger enterprises. Effective cost control can be crucial for their survival by minimizing expenses and improving financial stability.
3. How does cost control contribute to better supplier relationships? By freeing up money through cost control, businesses can pay their invoices to suppliers promptly, fostering goodwill and stronger ties with them.
4. What are the benefits of using digital tools like Tradogram for cost control? Digital tools like Tradogram offer better visibility into spend and expenditures, streamline purchasing workflows, manage supplier relationships, and provide valuable analytics for making informed cost management decisions.
5. What is the difference between cost control and cost reduction? Cost control involves making informed reductions in expenses based on data analysis and proactive planning. Cost reduction, on the other hand, often involves more drastic and permanent cuts to expenses, which can disrupt operations and affect employee morale and customer satisfaction.
6. How can cost control improve employee productivity and morale? Effective cost control can lead to financial stability, which in turn can uplift employee morale by ensuring better wages and job security. This improved morale can enhance productivity as employees feel more motivated and valued.
7. Why is balancing cost-cutting and revenue generation essential for businesses? Solely focusing on cutting costs can lead to diminished sales and lower profit margins. On the other hand, increasing sales without managing costs can result in higher expenses. Balancing both ensures optimal return on investment (ROI) and sustainable growth.
8. What impact does cost control have on a company’s credit rating? By reducing expenses and freeing up money to service debts, cost control can improve a company’s debt-to-equity ratio and overall creditworthiness, making it easier to secure loans in the future.
9. Can cost control strategies aid in better contract negotiations with vendors? Yes, having a better budget through cost control can provide businesses with more leverage to negotiate favorable contract terms with vendors, potentially leading to better deals and cost savings.
10. What are some common problem areas for small businesses that cost control can address? Cost control can help small businesses manage common issues such as lack of capital and cash flow, improve marketing and advertising efficiency, and optimize time management, recruiting, and retention strategies.

By Daniel Epstein

Daniel Epstein is a senior financial research analyst at FinancesOnline and the architect behind our Fintech and ERP content division. His main areas of expertise are blockchain technologies, cryptocurrencies, and the use of biometrics in fintech solutions. His work has been frequently quoted by such publications as Forbes, USA Today, Entrepreneur, and LA Times. With more than 1,800 solutions scrutinized in the last 5 years spent on our team he always prioritized offering readers an unbiased perspective on modern financial technologies.