There are, however, some techniques and tools that can help the administrator to overcome this challenge and make the company grow and stand out in an increasingly competitive market and with increasingly demanding consumers. One of these tools is the cost center.
In today’s article, you’ll find out what a cost center is, what its benefits are and how to implement it in your company. Continue reading and find out more!
What is the Cost Center and how does it work?
The cost center is a technique that allows separating a given company into different sectors – autonomously – so that they have their own financial management, with specific revenues and expenses for each department. The sum of all cost centers of a company, therefore, represents the whole of the business.
In addition to the departments, the cost center can also represent a specific business project, always having the main objective of grouping revenues and expenses related to only a certain part of the company – promoting greater autonomy for each sector of the company in terms of revenue generation and application of resources and expenses.
A company, for example, can create a cost center for the human resources department, another cost center for the marketing and publicity department, another for the commercial sector, among others. Management is carried out in a fragmented manner – facilitating financial organization; if added, however, the cost centers result in the company’s total expenses and profits in a given period.
What are the advantages of using the Cost Center?
Through the financial division of a company’s costs and profits into cost centers, it is possible to obtain a financial summary of the company’s structure as a whole. From this statement, it is easier to verify the financial health of each department, its needs and strengths – allocating a certain amount of money to each sector and defining the contribution of each department in relation to profits.
As a result of this dynamic, the company manages to have a much more efficient financial control , in addition to a better performance in the business as a whole – since all departments will have goals to be met and their autonomy in relation to earnings and expenses . Without the application of the cost center, on the other hand, the entrepreneur may have difficulties in managing the business, which tend to cause a “domino effect” in the financial and organizational health of any company – bringing risks to the company.
How to define and implement the Cost Center?
The definition of the cost center is specific to each business and may vary according to the needs and structure of the company. It is important for the manager to know, however, that any company – whether small, medium or large – can implement the cost center at any time.
If you have a small company, for example, it can be very convenient to implement cost centers in each department, in order to better control the inflow and outflow of money. You can, for example, create a cost center for administration, another for the commercial sector , and a third for the marketing and advertising department.
Based on this definition, all you have to do is assign expenses – for each cost percent – into categories and measure costs and profits for each of the departments. In this way, you will be able to have a more holistic view of the expenses of each sector and how much it contributes – or can contribute – to the growth of the business.
If you have a company and still haven’t implemented the cost center in your corporate day-to-day life, maybe it’s time to think about the possibility of using this technique in favor of your business. After all, this is yet another tool that entrepreneurs can use to make their company more organized and encourage healthy and controlled business growth.