When cutting costs is counterproductive

Improving profits without just cutting costs.

At Connected Accounting we can provide businesses in the St Albans area with assistance and advice on a wide range of business issues. Here are some reasons why cutting costs is not always the best policy...

When business owners begin to think about developing profit improvement strategies, we often find they are expecting to embark on what is principally a cost saving exercise.

But there is a lot more to profit improvement than simply cutting costs. Indeed, there is a danger of cost cutting strategies becoming counterproductive if too much reliance is placed on them.

Diminishing returns

In our experience, once businesses have identified and realised major cost savings, the law of diminishing returns dictates that any further attempts to make savings will be less effective. If too much emphasis is placed on cost reduction there is a risk of cutting into productive capacity, and even inadvertently increasing costs.

Moreover, a sustained cost-cutting exercise can damage morale and create an atmosphere of pessimism. After all, you cannot grow by cutting back.

Tunnel vision

But perhaps the greatest danger of overemphasising cost cutting is developing tunnel vision and missing out on more creative, and often much more effective, strategies for improving profitability.

Profit improvement is a process that ranges across every aspect of your business. And often the most successful strategies develop from the most unlikely places. Profit improvement is as much, if not more, about increasing revenue, as it is about reducing costs.

Focus on profitability, not just cost

This is not to say that cost reduction has no part to play in profit improvement strategies. On the contrary, when included in a comprehensive and creative programme it can result in considerable improvements on the bottom line.

However, the key to successful profit improvement strategies is to ask not how much does a particular process cost, but how profitable is it?

If you are in the St Albans area and would like professional assistance from experienced accountants and business advisers, contact Connected Accounting.

Latest News Keep up with the latest business news stories

Call us Banner image for Connected Accounting

Free Consultation

Get in touch with us today for a fresh perspective and a free consultation.

Connected Accounting

Providing simple to understand accounting services for private and business clients with a hands-on approach. Building strong long-lasting relationships that you can trust.

Connected Accounting Limited | Registered Number: 09617704 | Registered Office: St Albans office

St Albans

Contact Details

London Office:
Connected Accounting, 107-111 Fleet Street, Blackfriars, London EC4A 2AB
St Albans Office:
Connected Accounting, Fountain Court, 2 Victoria Square, Victoria Street, St Albans AL1 3TF .

Call us: 01727 537 160

2021 WFA Winners

Reviews and Ratings for Accountant Samuel Troy, Tonbridge
Home | Our Pricing | Resources | Contact us | Accessibility | Disclaimer | Privacy | Help | Site map | © 2021 Connected Accounting. All rights reserved. We use cookies on this website, you can find more information about cookies here.