Cost Control: Best Practices for Business Expense Management

Effectively managing business expenses and other costs associated with operating your business is crucial for boosting profits and ensuring long-term success. With rising healthcare costs, inflation, and higher talent retention costs, profits can easily dwindle and threaten your business’s stability.

However, there are some simple ways to implement cost controls and safeguard your organization’s profitability. Let’s explore how strategic planning can make a significant difference, particularly in managing labor and HR-related expenses.

What Is Business Expense Management?

Business expense management is like giving your company a financial health check-up. It identifies, tracks, and streamlines the costs associated with running a business. The goal of business expense management is to ensure that every dollar spent is being put to good use and aligns with your company’s objectives.

By implementing efficient systems and tools for managing your business expenses, you may be able to avoid unnecessary costs and make smarter spending decisions. Effective business expense management ultimately helps optimize expenses and plays a crucial role in enhancing profitability and financial health.

Because prices naturally rise over time due to inflation and other economic factors, businesses need a plan to monitor and control their ongoing expenses.

What Is Cost Control?

Cost control is similar to business expense management, and the terms are often incorrectly used interchangeably. However, they both serve distinct functions within a company’s financial framework.

While business expense management is primarily about identifying, tracking, and optimizing expenses, cost control focuses on maintaining expenditures within predetermined limits and involves strategies to actively reduce costs where possible.

Expense management aims to improve spending practices, while cost control is about containing and reducing those costs to safeguard profitability. By integrating both approaches, your company can finetune your financial health and agility.

Why Do Businesses Need To Track and Manage Expenses?

Successful businesses are masters at maintaining solid control over their expenses, which is typically a crucial factor in their success story. It’s not just about pinching pennies or cutting corners. It’s about smart, strategic spending that supports long-term goals.

When businesses are vigilant about tracking where each dollar goes, they can adapt swiftly to changing circumstances, seize new opportunities without hesitation, and ensure they have the resources to innovate and grow.

By having a clear view of financial outflows, these businesses create a stable base from which they can launch bold initiatives, all while feeling confident and secure about their financial footing.

How Do You Manage Company Expenses?

Before you consider how to manage business expenses, it's helpful to break down the scope of your efforts by different types of costs. Many companies have expenses related to labor, HR, materials, technology, research and development, marketing, rent and utilities, equipment, supplies, and several other categories.

Looking at all the expenses within a business can be overwhelming and unproductive, but learning how to control expenses by category is a much more productive process.

Let's start by exploring how to manage labor costs and HR expenses.

Labor Cost Management

At a basic level, labor costs include the wages of your employees, though these costs are often impacted by other factors within your business. In certain jurisdictions labor costs are also affected by scheduling complications rather than actual work completed.

Analyzing your staff scheduling is important in maximizing productivity and reducing unnecessary expenses. To do this effectively, you should review your schedules holistically and historically.

• A holistic review ensures that schedules function optimally, both at the team level and within a larger department or company.
• Historical reviews can help you find opportunities to increase efficiency by adjusting your scheduling practices moving forward.

For example, consider a company that regularly deals with understaffing issues. Although it may seem like a smaller staff would minimize labor costs, this can have the opposite effect. As employees cover the workload in understaffed departments, they may get pushed into overtime hours. Without visibility into the scheduling process, companies will find it difficult to hire people who could help save them money in the long term.

Similarly, analyzing the hours worked and looking for overtime during your holistic review can be key to managing your budget. It's also an important part of staying in compliance insurance plans and with federal health insurance regulations, where hours worked can impact which employees are eligible for benefits and whether an employer is subject to the Affordable Care Act’s employer shared responsibility provisions.

Managing HR Business Expenses

In addition to the actual cost of paying your employees, your business incurs considerable expenses associated with hiring employees, managing employee benefits programs, and maintaining proper compliance documentation associated with these functions. Here are a few human resource cost examples that could add to your bottom-line expenses.

Hiring and Employee Retention Cost Control

Attracting, hiring, retaining, and developing top talent is crucial for a company’s success, but costs associated with low employee retention can add up quickly. The resources spent on recruitment may be wasted if employees leave a company shortly after being hired.

To minimize HR costs related to onboarding and turnover, it is vital to create an environment that helps new employees contribute quickly and provides them with the tools to develop their skills and remain valued team members.

You can encourage employee loyalty by providing your new hires with:

• Positive onboarding experiences
• Development opportunities
• Training and mentoring
• Continuing education
• Competitive benefits and salary packages
• Employee benefits: Healthcare, workers' compensation, and more

Many companies evaluate the costs associated with employee benefits and find misalignment between offered benefits and those that employees value. Your company may be paying for certain benefits that your employees underutilize, and you may also be missing opportunities to take advantage of other low-cost or no-cost programs your employees would find valuable.

Managing Employee Benefits Expenses

Today’s diverse work environment often spans five generations of employees, from Baby Boomers to Gen Z. Each generation brings unique perspectives, needs, and expectations to the table, which makes evaluating current benefits offerings more crucial than ever.

A multigenerational workforce means that a one-size-fits-all benefits package might not be as effective in meeting your employees' varied preferences or needs.

For instance, while Gen Z employees might prioritize opportunities for student loan repayments or career advancement, Baby Boomer employees might be more interested in retirement contributions or flexible work arrangements.

Regularly assessing and tailoring your benefits offerings to cater to the multigenerational workforce helps support your employees' well-being and satisfaction and strengthens your company’s ability to attract and retain top talent across all generations looking for work.

Cost Control Strategies Related to Employee Benefits

You can evaluate your current benefits offerings and potentially find comparable but less expensive alternatives to health plans, employee assistance programs, payroll support, and other core human resources-related expenses.

When evaluating your current offerings, consider the following:

• The diverse household structures of your employees and whether it’s beneficial to include coverage for dependents, spouses, and domestic partners in your benefits programs. Note that some states require employers to include domestic partners in employee benefits if they offer spousal benefits.
• If benefits plans require your employees to share some costs and how this impacts different generations within your workforce.
• The types of benefits that resonate with each generation and how they affect different generations within your workforce.
• Opportunities to partner with larger benefits providers to access more comprehensive, cost-effective benefits and insurance plans tailored to a multigenerational workforce.

There are some benefits, such as workers' compensation insurance, that you won't be able to cut because it is mandatory in most states. Rates are set by the state and vary by occupational risk classification. Managing these costs is largely out of your hands, but companies can benefit from working with an insurance agency that thoroughly understands workers' compensation rules and regulations.

How To Save on Employee Benefits Business Expenses Through HR Outsourcing

Businesses of all sizes can work with a professional employer organization (PEO). By joining forces with a PEO, your business gains access to a broader range of benefits and streamlined administrative support that can help lighten your workload.

This relationship allows your employees to enjoy access to extensive benefits at a lower cost and frees up your time to focus on growing your business. Working with a PEO can mean more resources, better benefits, and a stronger support system for your team – all while saving money.

Outsourcing HR functions can be an important step in cutting costs without eliminating benefits that employees value or jeopardizing your ability to manage these HR functions accurately.

For example, according to the Society for Human Resource Management, companies that use Professional Employer Organizations (PEO) can experience significant cost savings. Additionally:

• 14% of these companies that outsource HR to PEOs have turnover rates that are 10-14% lower compared to those that manage HR internally.
• Businesses that outsource their HR functions to a PEO grow 7-9% faster than their counterparts that do not.
• Companies working with a PEO report an impressive return on investment in cost savings, exceeding 27%.¹

This data highlights the positive outcomes associated with HR outsourcing, making it a strategic move for organizations looking to enhance efficiency, reduce turnover, and drive growth, all while saving time and money.

How Technology Can Help Reduce Costs of Business Expense Management

Adding more technology to your business may require the purchase of additional platforms or programs. However, these purchases can improve your business efficiency by automating low-value processes and providing more self-service options to keep costs down. Instead of viewing technology as an expense, consider it an investment in your cost-controlling measures. Finding and incorporating the right technology for your business can help to save you money on HR and labor costs.

Technology and HR Costs

Investing in HR software is another way to help manage costs. Advanced software programs built specifically for HR functions can automate much of the heavy lifting and time-consuming responsibilities of key HR functions. For example, applicant tracking systems can streamline the recruiting process by using automated questionnaires to screen individual applicants, and automating candidate communications.

HR costs can also be reduced by incorporating other tools, including:

• Employee self-service portals
• Management reporting portals
• Service desk and ticket-tracking software for employee issue resolution
• Time and attendance tracking automation

AI-Assisted Recruiting Tools

AI-assisted recruiting tools are revolutionizing the hiring process by saving time and improving hire quality. By analyzing large data sets efficiently, these tools may identify candidates or potential candidates who best match job roles, giving companies a competitive edge in the talent market. By embracing these innovative tools, companies can better manage recruitment costs while ensuring they attract top talent.

Technology and Labor Costs

In addition to cutting your HR costs, technology can help save on labor costs by reducing the time your staff spends on low-value administrative work. Administrative work is required to keep your business running smoothly, but it can take up a significant amount of time that could otherwise be spent on more productive tasks.

You can minimize labor costs by incorporating the following technology into your daily operations:

• Self-service technology: Providing your employees with a self-service portal can reduce the amount of time they spend communicating with management about routine updates and changes. This can reduce employee labor and minimize the workload on your HR team responsible for handling those routine tasks.
• Automated workflows: Technology-based human capital management (HCM) systems can reduce your internal paper trail associated with managing your workforce. Instead of updating information multiple times in disparate systems as employees are hired, fired, or promoted, or change personal information, automated workflows provide a single point of entry for your HR team to update the information across all company systems with just a few clicks.
• Predictive scheduling: Overscheduling or underscheduling can put additional strain on your workforce and raise labor costs. Predictive scheduling uses historical information and other inputs to more accurately project an appropriate amount of labor, allowing managers to build out accurate schedules in a fraction of the time.

Mitigate Unnecessary Expenses in Your Business

A solid cost-control plan can help you maintain the long-term viability of your business. To be sustainable, your company should actively look for ways to optimize available cash and ensure capital expenses aren't out of control. An expense report and management software solution can help you quickly dig into your expenses and find opportunities to reduce costs.

Simplify Expense Tracking and Reporting to Help With Business Success

Unleashing your business's full potential starts with smarter expense management. Efficient expense management helps enhance cash flow stability, ensuring your business can meet its financial obligations and seize market opportunities as they arise. When organizations develop a culture that values disciplined spending, they are better positioned to achieve long-term success and withstand economic fluctuations.

Integrating tools such as Paychex expense reports and management software can help you harness the power of detailed expense insight for better financial decisions. Learn more about expense management solutions and see how they can contribute to your company’s growth strategy and start optimizing your expenses today.