1. Reassess your strategic priorities.
The first step in effective cost evaluation is making sure you have a clear picture of how your company wants to grow. Is your priority expanding into new markets? Are you focused on launching new product lines? Or do you plan to grow through mergers and acquisitions (M&A)?
“It’s always a good idea to start any new project with a firm idea of what you want the outcome to be,” says Cathcart. “Cost evaluation is no different. Knowing your goals can help you identify which investments are fueling your growth plans and where you can afford to cut back.”
If your plans are shifting because of business changes like leadership transitions, emerging customer preferences, or a fluctuating economy, reassessing your priorities is even more crucial. Expenditures that made sense in your budget last year might not support your new goals.
2. Identify good costs and bad costs.
To understand how each expense supports your vision for growth, start by assessing what capabilities are most important to achieving your goals. For example, if you want to expand into new markets, you’ll need the capability to use payment processing tools that fit both the customs and regulations of your target geographies.1
“The expense associated with implementing those tools is a good cost because it contributes to the success of your mission,” says Cathcart. “Plus, it should eventually be offset by the increased revenue your expansion will bring.”
On the other hand, if your company is focused on launching a new product line, the increased production might put a strain on your existing equipment. Think about whether an investment in buying or leasing new equipment could help you manage costs over the long term. Maintaining old equipment could be a smaller cost in the short term but add up over time if the equipment can’t handle your new needs.
“Identifying good costs and bad costs can help you see where to trim without endangering your overall strategy,” says Cathcart. “When you cut bad costs, you free up capital that you can redirect toward good costs.”
Strategic cost management doesn’t have to mean cutting resources. It’s also important to see where you can optimize your processes to eliminate inefficiencies.
“Payables and receivables are two key areas where you can easily leverage technology to create efficiencies,” says Cathcart. “It costs much more to write a paper check than it does to process a digital payment. Plus, digital payment technology comes with fraud control—which could protect you from further losses.”
For example, one Truist relationship manager shared the story of a client that had been manually writing checks without fraud control for years. An employee was even driving checks to their local bank branch. After the company suffered losses due to fraudsters scrubbing and modifying their checks, the company reached out to Truist for help. Their relationship manager helped the client set up integrated payables with automated fraud control so they could electronically manage and track payments.
“That’s a great example of a company eliminating inefficiencies to redirect their resources toward good costs,” says Cathcart. “They can now have employees focus more on revenue-generating tasks.”
4. Balance long-term goals and short-term savings.
Cost-cutting often happens as a reaction to an economic downturn—and it may save you money right away. But it’s important to analyze and project the potential long-term effects of any cut.
Take, for example, a story Boston Consulting Group shared about a specialty retailer they helped complete a cost management overhaul. After years of following a vision of “growth at all costs,” the company found through a workforce analysis that cuts they’d made to meet short-term goals had left their stores understaffed in the long term. The company increased store personnel by 15%—which resulted in revenue 24 times higher than the cost of hiring the new team members.2
“That example shows smart spending can be just as effective as smart cutting,” says Cathcart. “It all depends on how the move balances your short-term needs and long-term goals.”
5. Borrow smarter to free up capital.
Strategic cost management can also mean thinking critically about how you use credit to fuel growth.
“Be sure you’ve analyzed the projected return on investment of any growth initiative you’re seeking to fund,” says Cathcart. “You want to be relatively sure that the revenue you generate will exceed the cost of borrowing.”
Some smart borrowing moves can include refinancing existing debt to lower interest rates and free up capital, purchasing new equipment or technology that could help increase productivity, or completing an M&A transaction that gives you a bigger share of the market. Leveraging deep internal industry knowledge, your Truist relationship manager can help you understand how other firms across your sector maximize these considerations to drive growth.
Bottom line: Never stop optimizing.
Cost management shouldn’t be a one-time effort. It’s something you and your team should constantly reassess and adjust for long-term results.
“Creating a culture of cost management is one of the best things you can do to boost your growth efforts,” says Cathcart. “Make it a priority and you’ll always be better positioned to thrive.”
