You might be watching your costs like a hawk on the income statement or in your product pricing sheets or service pricing sheets. You may have a good handle on variances and know very quickly when certain costs are starting to get out of line. You take appropriate action.

However, in the same circumstance, you might have the eye off the ball on the costs on the balance sheet. These costs could be just as significant.

What are some costs to be looking at on the balance sheet?

1. Capital structure. The capital structure can be one of the biggest expenses that the company has. How’s your mix of debt and equity? Are you utilizing debt to the extent that you can to bring down your cost of capital? Is your debt at as low of rates as it could be?

2. Accounts payable. Are you taking advantage of all the payment discounts that your suppliers offer you? If you happen to miss any of these, this can be just as expensive as having venture capital financing or having factoring. The incentives from vendors are usually too good to be passing up.

3. Cash. Are you keeping too much cash tied up into the business because of certain requirements from the bank, such as too high of compensating balances? Could you change your bank agreements or switch to a different bank in order to get more use of cash that could be applied elsewhere? Are you taking advantage of the cash management project that your bank has to offer?

4. Accounts receivable. How much money do you have tied up in accounts receivable? Are there potential bad debts lingering that need to be resolved quickly? What cash flow could you generating by stepping up your collection?

5. Inventory. Do you have too much dollars tied up in inventory? Is there some obsolescence risk? Should you be moving out some inventory at a discount to customers or, perhaps, find somebody else who might be willing to take over some of that inventory?

6. Fixed assets. Are you utilizing all your fixed assets? Are there some fixed assets that could be disposed of and generate cash? Are there efficiencies you could gain by having newer equipment?

So, as you can see, there are lots of things to look at on the balance sheet to help you save costs too. Put your eagle eye there as well and not just on the income statement. You might just find some juicy areas to save money.

Jon Paul, MBA, CPA, CMC, CM&AA

President, Value Added Finance Resources
Bringing new insights on results and maximizing company value