Costs are a vital concern to any business. They determine profitability, but a keen appreciation of ongoing running costs also determines whether a business’ cash flow will be sufficient to keep the business going at all. Even the best laid financial plans can be laid to ruin with an unplanned expenditure suddenly appearing and many an accountant has had a set of carefully calculated accruals spoiled by some unexpected event.

A careful look at costs will show certain problem areas common to most business; cost of goods purchased or raw materials is one of the primary culprits. These cost increases are unforeseeable because although we might suspect that say, oil prices might rise, we have no way of knowing in advance whether or when a subsequent increase in the transport costs of our supplier might be passed on to us.

Another main area notorious for cost overruns is a company’s IT Department. The problems here can be multiple, examples include; costs of replacing broken PC’s or their components, unexpected hardware upgrade costs and the purchase of additional software or the renewal of business user licences.

So what can be done to mitigate the effects of these unexpected events?

In respect to stock/raw materials costs, avoidance of cost increases is not possible. What you should be doing, though is budgeting for an increase in advance. There is no real hard and fast methodology for this but if for example you projected the cost of oil to increase by say 4% in the next quarter, although none of this might be directly passed on to you, you could project this 4% increase into your budget. Although on the face of it this will affect your projected cash flow by 4%, if no raw material increases occur then you will be left with an unexpected surplus at quarter’s end…how much better that an unaccounted for deficit!

With regards to IT costs, there will always be an element of unpredictability that is impossible to account for in advance such as PC breaking downs etc, but there is a way of reducing almost all other IT running costs to a quantifiable monthly figure by using a virtualised desktop solution.

The examples above cover the two areas that tend to prove the biggest bugbears to advance budgeting. Fortunately other costs can mostly be tied down before a project is started. As an example I have chosen the field of translation services. An increasing number of companies are trading abroad and so the need for translation services has also grown proportionally. The website of Lingo24 Translations UK shows a good example of how a visit to a website can enable you to price up a project in advance, pay and thus fix your cost in advance…no hidden surprises.

So if you want your company to still be operating a few years down the line…watch your costs, budget well and watch out for those nasty surprises!.