For some, the idea of using Activity Based Costing or ABC for a small business seems like a waste of time. What does Activity-Based Costing mean in the modern-day small business? ABC can be a vital tool for businesses of any size. Including those with only 2 to 4 employees. It’s both an informative and liberating tool that can help your business excel. What does ABC mean in the modern-day small business?
Every Business has Expenses but Do You Know What They Cost You?
The truth is Activity-Based Costing allows you to better allocate overhead costs as a business plus it shows you what’s causing those costs to occur. Although many people hear about it, when it comes to startups and small businesses, it’s less likely you truly understand the benefits. When you have this information in hand, you can easily make a more informed decision about where you need to go next. Activity-Based Costing is a great tool for helping you do just that.
Sometimes in the framework of a small business, owners forget that everything comes at a cost. This can include their own time as well as what it costs to do what they do. The costs associated with this can quickly get out of hand and when it does, businesses feel the pinch quickly. This can be brutal for a small business dependant on making every penny earned count.
When does ABC make sense?
ABC doesn’t make sense for a business that sells one product or one that provides a single service to people. However, you can use this to estimate what adding new services will cost you. ABC is your go-to tool for better allocating overhead costs when you have multiple products so if you are thinking of adding other services to your current offerings, implement ABC from the beginning so you can start off on the right foot.
How ABC Helps You Manage Smartly
ABC costing systems create a great opportunity for your management team. You can easily produce management reports that allow you to make smart internal decisions that focus on the overall health of the organization. Although traditional costing has many benefits, it’s ABC that can take your business to the next level.
Why is ABC so important?
Activity-based costing has grown popularity over the last few decades because manufacturing overhead costs have increased significantly. This is in part due to the diversity of both the products out there and in the customers' demands for them. These days products and services even complement one another.
This is why more and more businesses wish to refine costing down to the dollar and then maximize what they do and how they do it. It makes sense because, over the last decade, we’ve seen a variety of businesses close their doors and others becoming in serious jeopardy. This only serves as a lesson to always know what your costs are.
How can I learn more?
If you maybe have heard the term Activity Based Costing, but never really learned what you needed to know, we’ve got a wonderful resource for you. Read our latest white paper and discover why we think all industries can benefit from ABC and just how much it can help your business succeed today! Activity-Based Costing in the Modern-Day Small Business is a must!