Cost And Effect

This is the first survey Dun & Bradstreet has done on small-business costs, so it's difficult to spot any trends. However, experts identify several long-term changes in costs that small businesses should be aware of.

First, Gillis says to be on the lookout for changes in the way costs are accounted for. He points to the growing popularity of activity-based accounting, a way of allocating costs to specific activities in a business, as an example of the way the accounting field is changing its approach.

Technology is also changing the way costs are measured, says Gillis. Faster, cheaper computers and improvements in data-gathering tools such as bar codes continue to make cost-accounting faster and more accurate. "Those advances help you know what your costs are and how to handle them," he says.

Another important consideration is finding new ways to whittle down the biggest overall cost category--compensation and benefits. Low predicts that outsourcing will become much more common for small businesses in the years ahead.

Entrepreneurs may also want to watch for new costs that are growing in importance. Egge feels one of the major ones, which is barely recognized now, will become far more significant for small businesses in the near future.

"It's called opportunity cost," Egges says. "It occurs when CEOs and presidents have to wear too many hats at one time. They have to [evaluate] whether to go with computers, hire more people, buy more insurance or do more outsourcing. [By failing to plan ahead], they're jumping around like chickens with their heads cut off--that's a major cost of doing business."

When all is said and done, how important are costs? Too much emphasis on cost control can hamstring a company's growth just when it needs it most. Too little, as Doescher warns, can cause you to grow right out of business.

This article was originally published in the January 1998 print edition of Entrepreneur with the headline: Cost And Effect.