Cost Management Strategies to Win the Battle (Autumn 2009)

In these turbulent economic times, businesses are facing many challenges. One continuous battle is the management of costs. The 2008 Hawke’s Bay MAF monitoring vineyard model shows production costs were up 13 percent on the previous year. Biggest increases were noted in the areas of labour, weed and pest control, repairs and maintenance, frost protection, fuel and contract machinery work.

Here are some cost management strategies to consider:

1. Set a written budget: Preparing a budget sets a blueprint of what you would like to see your business achieve in the next 12 months. Set a budget for each expense line in detail. Start each expense line with ‘zero’ – don’t just put last year’s actuals in your budget as a starting point. Businesses that do actual versus budget performance measures greatly improve their chances of survival.

2. Cost control improves profitability: Remember every dollar saved goes on to your bottom line.

3. Shop around: Don’t be lazy! – Shop around to get the best prices for various supplies.

4. Review costs on an ongoing basis: Create a checklist of key costs being incurred and review regularly. What’s happening in the marketplace? Is there a new supplier or product in the market? Is last year’s product still appropriate? Why are we incurring this expense? The question needs to be regularly asked. Are you buying a ‘brand’ name when that is not necessary?

5. Energy costs: Have you got the cheapest electricity deal? Have you done an audit on usage?

6. Telephones: Check telephone bills. Do you understand your mobile phone plan? Mobile phone costs can easily blow out.

7. Bank interest, fees and charges: These should be regularly checked! When did you last discuss your interest rate and margin with your bank? Are your personal credit cards being paid off completely every month? Credit card interest rates can be 15 percent plus!

8. Fuel: Are you running fuel efficient machinery and vehicles in your business?

9. Insurance: Get your broker to review your insurance for a better deal. Review life and income insurance with your accountant. Are you over-insured?

10. Labour: Benchmark your labour costs against other vineyards. Consider substitutes like mechanisation or livestock. Do you have permanent staff – are they being paid above market rates? Consider dropping hours and using more family labour.

11. Beware of overcharging: Always obtain written quotes. Check the suppliers’ invoice for hours completed. Check extensions on the invoice. Don’t be bullied – check quality standards have been met.

12. Drawings: Often controlling personal spending can be tough. Share your budget with your spouse and family to get ‘buy in’ on the plan.

13. Ask for help: Set regular meetings with your chosen advisor to keep on track with your budget and help make key decisions.

Published in WINE Hawke’s Bay Autumn 2009.

Serious about your success?