Why It’s Time to Reassess Your Business Cost Structure

By

Image via RKL.

The coronavirus pandemic essentially served as a real-world stress test for organizations, and it remains an unpredictable force in our society. Whether your company adjusted to a painful new reality, pivoted to new products and services, or experienced a surge in demand, all organizations should evaluate their ongoing response and pinpoint what worked, what didn’t, and what could be improved.

Below, the advisors at professional services firm RKL LLP explain the importance of reevaluating business cost structure, which changes over time based on the addition or subtraction of revenue streams, changes in revenue volume, new innovations and technologies, competitive pressures, evolving regulations, and unforeseen crises like COVID-19.

Identify Key Cost Components  

The industry in which your business operates will help dictate its cost structure. Some industries are more labor intensive than others and some require more investment in facilities, equipment, and other fixed assets. The delivery system used to reach customers is another factor. Service providers, manufacturers, wholesalers, retailers, and rental activities will have vastly different cost components. Understanding and tracking the primary cost elements of your business and comparing to industry financial benchmarking data can help evaluate the operating efficiency of your cost structure, as compared to your peer group.

Questions to Assess Cost Structure Impact

  • With our modified operations and the anticipated ongoing demand for our products and services, how many employees do we need to operate efficiently but safely?
  • Based on our current workplace environment, is our equipment underutilized and what impact does that have on our average unit cost?
  • What is the expected impact on our critical supply chains and the availability and cost of materials?
  • Based on how we expect to conduct business activities for the foreseeable future, can we mitigate our occupancy costs (office space, store fronts, plants, and warehouses)?
  • What are our revenue projections for the next 18 months? Revenue volume impacts the utilization of your fixed costs and determines the level of variable costs needed.

The best business decisions are based on good data, but the current reality may change historical financial trends and performance metrics (gross margin, operating margin, average cost of units sold). A realistic reassessment of your business cost structure during these unprecedented times will provide a competitive advantage and allow for informed decision-making.

RKL’s team of advisors and analysts help businesses assess cost structure and make needed adjustments. Contact the firm’s Exton office to connect with a local professional. Visit RKL’s Business Recovery Resource Center, where you’ll find more guidance and insights to navigate uncertainty, and subscribe for updates and webinar invitations.

You Might Also Like

Employers: Are You Claiming All Your COVID-19 Tax Credits? RKL Can Help

Is Your Company Ready to Emerge from COVID-19? RKL Offers To-Dos and Tips for Successful Recovery Planning

RKL Addresses Knowns and Unknowns of New PPP Loan Forgiveness Application

Tags:

Join Our Community

Never miss a Delaware County story!

"*" indicates required fields

Hidden
DT Yes
This field is for validation purposes and should be left unchanged.
Advertisement