Business - Analyzing your Costs

Cost control or cost reduction in a down economy is essential for business survival. The following is a series of questions to ask as you look at direct costs in your horticultural business enterprises.

The first step is to list your enterprises. For each enterprise list all your direct expense categories and the actual dollars expended for each category in the past year. Try to assign additional costs to that enterprise that would otherwise end up in indirect costs or overhead. For example, vehicle or equipment maintenance costs can be assigned to an enterprise if they are only used in that enterprise or if you know what percent of the time that they are used in the enterprise (cost of maintenance* percent of time used in that enterprise during the year)

For the expense categories that you listed for your enterprise, note whether they increased or decreased last year. Ask why they increased or decreased. Ask is the reason for an increased cost justified or do you need to focus more time on controlling the cost?

Look closely at each enterprise expense category in relation to the coming year and ask the following questions:
1) Is there a potential to reduce costs?
2) If so, how will it be achieved? and
3) What will the potential savings be in dollars.

The next step is to take a closer look at each of your expense categories for the enterprises. This is a drill-down analysis. Take that enterprise and list all actions associated with it where expenses are incurred (labor is used, materials are used). List all specific costs related to each job action.

For each job cost ask the following questions:
1) Is it possible to buy/obtain/hire at a lower cost? How? What will be the savings?
2) Is it possible to reduce use or be more efficient? How? What will be the savings?
3) Is it possible to eliminate the cost entirely? Why? Will it affect the quality of the product or service? What will be the savings?

Gordon Johnson, Extension Horticulture Agent, UD, Kent County