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Cost Control: Managing Business Expenses

  • Finance
  • Article
  • 6 min. Read
  • Last Updated: 08/05/2021

business owner managing expenses

Table of Contents

Managing business expenses and other costs associated with operating your business is essential for driving profits. Rising healthcare expenses, economic inflation, and growing talent retention costs can eat up profits and jeopardize the long-term viability of your business.

Fortunately, there are some simple ways to get started with cost controls and maintain profitability in your organization. Learn how strategic planning can help, especially for expenses related to labor and HR functions.

What is cost control?

Cost control involves identifying and reducing excess business expenses to increase profitability. Costs naturally increase over time due to inflation and other business and economic factors, so it's important for businesses to have a plan in place for monitoring and controlling ongoing business costs.

How to manage business expenses

Before you look at how to manage business expenses, it's helpful to break down the scope of your efforts by different types of costs. Within any company, there may be expenses related to labor, HR, materials, technology, research & development, marketing, rent & 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 in a business 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 salaries and wages to your employees, though these costs are often impacted by other factors within your business. Many costs associated with labor are due to scheduling complications, rather than to actual work completed.

Analyzing your staff scheduling is an important part of both maximizing productivity and reducing unnecessary expenses. To do this effectively, you should review your schedules both holistically and historically. A holistic review ensures that schedules are functioning optimally, both at the team level and within a larger department or the company as a whole. 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 actually have the opposite effect. As employees cover the workload in understaffed departments, they're pushed into overtime hours. Without visibility into the scheduling process, it's easy for companies to avoid making hires that could help save them money in the long-term.

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

Managing HR costs

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 just a few human resource cost examples that could be adding to your bottom-line expenses.

Hiring and employee retention costs

A company's ability to attract, hire, retain, and develop top talent is critical to its performance and potential, but employee retention costs can add up quickly. The time, effort, and capital spent on finding and attracting talent can equate to wasted dollars if employees leave soon after they are hired. Fortunately, HR costs related to onboarding and turnover can be minimized by creating an environment that gets new employees contributing to the company quickly, and providing them the tools to grow their skills over the long term and remain a valued member of your team.

You can reduce hiring costs and 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 their 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 are underutilized by your employees, and you may also be missing opportunities to take advantage of other low-cost or no-cost programs your employees would find valuable.

You can evaluate your current benefits offerings and 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 typical household makeup of your employees and whether it makes sense to cover dependents, spouses, and domestic partners in your benefits programs.
  • Which benefits plans require your employees to share some of the expense.
  • What benefits make sense and are valuable for your workforce.
  • How you can partner with larger benefits entities to get access to more comprehensive and less expensive benefits and insurance plans.

There are some benefits, such as workers' compensation insurance, that you won't be able to cut because they are 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 has a thorough understanding of workers' compensation issues and regulations.

You can further cut costs by forming business relationships with larger entities, such as a professional employer organization (PEO). PEOs allow for economies of scale by joining your workforce to a larger benefits and administrative employment group. Once you solidify this partnership, your employees get access to large-group coverage for benefits at a lower cost to both your business and your employees.


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. In fact, Bloomberg's 2019 Payroll Benchmarks Survey Report[MG1]  indicated that nearly 70% of HR departments relied on an outside service provider to handle at least one key HR function. Further, these HR functions tend to remain outsourced once the initial shift to a third-party provider has taken place, indicating that employers that take advantage of HR outsourcing generally have a positive experience.

Survey respondents were also asked about which functions they were most likely to outsource. Tax filing topped the list, with 68% choosing to outsource this specific task. Tax regulations can change frequently and failure to stay compliant can result in sizable penalties, so outsourcing this function to an expert can be a significant cost-saving measure. Finding an HR service provider that specializes in this area can help your business maintain compliance and avoid penalties while freeing up your internal HR team to focus on more strategic priorities.

How technology can help reduce costs

Adding more technology into your business may require the purchase of additional platforms or programs. But 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, view it as an investment in your cost-controlling measures. Finding and incorporating the right technology for your business can save you money on both 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, use automated questionnaires to screen individual applicants, and automate 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

Technology and labor costs

In addition to cutting your HR costs, technology can help save on labor costs by reducing the amount of time your staff spends on low-value administrative work. Administrative work is required to keep your business operating 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. Not only will this reduce employee labor, but it will minimize the workload on your HR team that is 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, 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.

Eliminate unnecessary expenses in your business

Having 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 make sure capital expenses aren't getting out of control. An expense report and management software solution can help you quickly dig into your current expenses and look for opportunities to reduce costs.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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