One area every business owner must pay attention to is the cost structure of the business.
Often, business owners do not define this parameter properly. It is necessary to determine:
1. The important cost inherent in the business,
2. The Key resources needed,
3. The key activities, and
4. The appropriate cost of key resources.
The determination of the above considerations becomes the substratum for revenue projections and strategic decisions.
SMEs don’t always account for all business costs. The thinking is that a startup business must have a very low or zero cost and sell at a very low price to gain market share. With such model, owners practically become the business, often frustrated and burn out.
The net effect is a business that lacks the capacity and resources to deliver on value. Business has different cost structures depending on its stage of development. One of the tools that helps in capturing these costs is the BUDGET
Businesses must be run based on what has been budgeted and planned. Budget has to be monitored to ensure that business operations stay within the approved value. Budget should be flexible enough to accommodate the unexpected.
Business owner should regularly check for expenditures that overshot their budgeted value and ask questions to account for it.