Do Business Well

1. Control the size of the establishment

Large-scale production brings certain economies with it especially in times of stability or growth, but in periods of retraction large-scale facilities can be too costly. Ensure that establishment costs are affordable for both high and low levels of activity.

2. Assess the minimum/optimum establishment size for your present activity level

Firms often work with facilities which have grown over the years as demand has developed. But are they what you really need now and for the future? Assess your ideal facilities objectively and compare them with what you have at present; you will at least have a picture of the changes you might make.

3. Collate the total establishment costs of your business

Have these calculated so that you can assess the relevance of these costs to your overall cost levels. The idea here is that you should analyse your expenses to see what costs are being incurred relative to your establishment size. Include those items which you may not at first recognise as being concerned with the establishment, such as internal transport, security etc as mentioned above.

4. Divide the total establishment costs into activity or cost centres

By analysing total establishment costs over defined centres you can compare one with the other. This will lead you to determine which activity centres are more expensive to run than others.

5. Calculate the proportion of production to non-production areas

See how much of your factory/warehouse complex is genuinely productive and how much is taken up by materials storage, obsolete machinery, corridors, passageways, partitions etc.

6. Determine value or performance levels for each of these activity or function centres

Such performance evaluation can be measured in production values, number of staff, function performed etc, so that comparisons can be made between such centres in the form of ratios, eg:

• establishment cost per square metre;
• establishment cost per employee;
•  establishment cost per unit of production.

This will identify those areas with unsatisfactorily high establishment costs compared with the area ‘value‘ or `performance‘.

7. Reduce the establishment costs in an area of poor performance

It may not be possible to change the physical layout of a factory but any reduction in establishment cost of any type in an area of unsatisfactory performance will be of benefit.

8. Increase performance or value level in such an area

An alternative to cost reduction would be to increase the performance or value of an area by additional activities, more productive staff, new products etc.

9. Combine the activities of two or more areas into a single reduced space

By condensing the activities into a smaller space, the less productive or valuable areas are more easily identified, enabling remedial action to be taken.

10. Review the size of an individual’s or a department’s office

Spacious offices can be just too expensive. A manager may need a little extra space but have your offices become just a little too spacious? Not every office need be a conference room as well.

11. Merge the head office with another unit

Factories outside the city centre may have surplus land or buildings which would enjoy lower establishment costs.

12. Reduce the number of branches

Companies with selling branches dotted around the country have to move with changes in demand. You may have branches close to each other that could now be closed, again generating cash and reducing establishment costs.

Possibly related posts: (automatically generated)
Just get into market? Starter? Get Establishment Costs Limited

• Just get into market? Starter? Get Establishment Costs Limited continue...
• I Made My Own Advertising Work part 3
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (1-9)
• How to arrange Advertising, Photo or Article which has the persuasive power?
• Some Franchise Terminology
• Get Your Business off to a Quick Start Week 1
• Are you struggle at the startup, do you know importance of a business plan?
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (10-18)
• Take the first steps to start up your business
• It takes time so have faith: Six simple steps ( 3&4)

4 Comments »