Businesses incur operating costs almost daily. Be it for the transportation of raw materials, coffee, and meals for employees or even just rent. Simply put, operating costs are the crux of how SMBs function and survive.

Operating costs are any costs incurred by a business that is not part of the primary production of the goods or services. Take the example of Ms. Seleyi, who runs a cafe in London. 

Some of the fixed operating costs that Ms. Seleyi incurs are:

• Rent or lease payments for the cafe

• Salaries paid out to her employees 

• Cooking equipment leases, if any 

• Utility payments like gas and electricity 

• Cafe insurance payments, and others

Some of the variable operating costs that Ms. Seleyi incurs are:

• Expenditure on buying and transporting raw materials like vegetables, bread, and other cooking essentials

• Packaging expenses, as she has a take-out option as well

• Printing costs for brochures and other marketing materials

• Advertising costs for promoting her cafe on social media

• Other business expenses like employee food and insurance bills, if any

Depending on the business you own, your operating costs will vary but are inevitable. Keeping track of these costs can help boost trade and financial productivity. This leads us to the question of how can businesses monitor, track, and control operating costs? This blog covers the essentials companies must know to manage and save on operating costs.

Questions businesses must pay heed to before fixing their operating costs

Since operating costs fuel the running of a company, businesses must effectively track, monitor, and analyze these expenses. This will provide insight into the company's current state of costs and budgets. It will also help paint a clear picture of the existing and forecasted financial health of the business. 

Questions based on different categories that businesses need to discuss:

Business acumen:

• Is your business profitable even after deducting operating costs incurred across the organization?

• Do current operating costs function well within the allocated budgets for departments and projects?

• Do you have real-time insight into financial data points? This provides crucial information to help businesses identify, analyze, and course-correct to save on operating costs.

Business financials:

• Do you have insight into all operating costs across expense categories, departments, budgets, and more?

• Is your business currently overspending or underspending across allocated budgets?

• Do you have information on the top spend categories, top spending departments, and top individual spenders in your company? 

Expense management:

• Do you have an effective method of tracking your operating costs and other business expenses?

• Do you have an accurate representation of operating expenses across expense categories, departments, budgets, and more?

• Are all reported operating costs compliant with the company policies and verified for policy violations and fraud?

Ways to control, cut, and save on operating costs

1. Identify hidden operating costs in mundane, repetitive, and time-consuming tasks

Tasks that eat into your employees' productivity with little to no business impact can damper your financial bottom line. Hence, it is essential to analyze which business processes, workflows, or tasks take way too much time and effort and give back way too little in return.

For instance, take expense management. T&E expenses cover all employee expenses. Be it food reimbursements and mileage, or even business travel reimbursements. Your employees spend their personal money to carry forward a business client meeting or business trip. Yet, once they are back, they are expected to undergo a lengthy expense report submission process. This makes managing business expenses hard for both the employees and the Finance teams.

The smart thing to do here would be to switch to an automated expense management software. At a fraction of the cost, it promises your expense management is made easy. Similarly, look for other mundane and repetitive operating costs currently affecting your business or your employees. Then look for intuitive solutions to automate tasks and do the heavy lifting instead.

2. Identify inefficiencies in workflows and processes around operating costs 

There is always scope for improvement no matter how good a business thinks its processes are. With the rise in technology, we see new software and products constantly innovating to simplify our lives. 

Away from work, your employees are used to having that luxury around them. This begs employers the question of whether they want to be employee-centric while also improving productivity? 

How businesses can start evaluating their workflows and processes:

• Start by understanding processes, workflows, and tasks that are traditional, tiresome, and time-consuming.

• Ask your teams to list the functions they deem redundant or wasteful of their time, skill, and effort.

• Understand the negative impact of traditional means on your business, employees, and Finance teams. 

• Look into outsourcing roles or even tasks if your employees seem to be overloaded with unnecessary work.

• Look for alternative ways to overcome these challenges. An easy start is by choosing tech-driven software.

This could be using an accounting and payroll software to automate and streamline your Finance processes. This could also be an expense management software to report, track, monitor, and analyze all your business expenses. Using these softwares not only decreases the burden on your employees and Finance teams but also brings greater process efficiency, control, and real-time visibility.

3. Adopt technology-driven software that cut costs and increase efficiency

Time is money. Unaccounted for, but still money. The best way to start optimizing your operating costs is by identifying business processes that can do without human intervention. Whatever your business requirements, there is already software out there doing the same work. But what's better is it does so in a fraction of the cost, effort, and time that traditional means would take.

Once you know which processes you would like to automate, consider multiple vendors before making a pick. Then, ensure you test drive these softwares using their free trials or demos. Here, evaluate if they would be a good pick for your teams.

Some teams also conduct small pilot studies with the employees and Finance teams before picking a software. If your employees like the software, the chances of adoption rate would automatically increase.

Summary  

Operating costs are an inevitable part of running a business. Therefore, companies need to control and optimize operating costs constantly to keep their Finances in check. Prolonged neglect could lead to a rise in hidden costs that can prove detrimental to the financial health of your business. 

But expecting your Finance teams to document, monitor, and analyze these operating costs manually could prove challenging. As a result, successful businesses are now adopting technology-driven software to overcome these challenges. 

With the world forced to move digital, it's time you make that shift to an innovation-driven software that does the heavy lifting for you and your teams.