Reducing your business costs during catastrophic times like Coronavirus means careful discernment if you want to stay fit for growth. But cost-cutting strategies are challenging even in the best of times.
How do department heads and owners trim their expenses, protect their bottom line, while retaining their biggest asset – their talented workforce?
You must choose between strategic cuts that help you win later, or slipping into total-panic-mode cost elimination that could harm future growth while saving money in the short run.
So, how do we employ cost-cutting strategies without losing staff engagement and productivity? How do we streamline our operations, save money, and stay ahead of the innovation curve while coming out in the black?
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Choose your cost-cutting strategy wisely
Cash is king during downturns so make sure that you’re monitoring your cash flow on a weekly basis. You can utilize tools like 13-week cash flow to assist you in monitoring the health of your business. Do you know your cash?
As you evaluate your budgets and where to go to work with cost reductions, use this time to drill down to the personnel and operations essentials. You’re likely ripe for some long-overdue conversations about cost-cutting initiatives.
1. First, target immediate impact
Look carefully at your company’s “pork barrel” spending. But, don’t eliminate every employee engagement program, either. For example, if you have a few (expensive) employee celebrations each year that your people love and live for, look at ways to combine them into one event.
You’ll save money and time now, and you can look forward to those savings long term even after your sales have rebounded from the current economic downturn.
2. Look at personnel issues
If you have any personnel you’ve kept around for reasons other than their utility, exemplary job performance, and leading-edge skill sets, now is the time to have a few hard discussions.
Granted, you don’t want to be the downer-boss in the face of a global catastrophe. However, leaning out your underperforming and less-than-busy staff so you can invest more deeply in your most valuable team members and departments makes sense for any business.
If you’ve kept problematic staff members now is the time to rip off the band-aid as part of your cost rationalization strategy. Staying fit for growth requires this sort of continual staffing discernment.
If your HR policies dictate extensive documentation before releasing staff and you don’t have it, there’s still a legitimate, ethical option available. You can evaluate the duties, required skills, and expectations of each department.
3. Examine job descriptions
Now is an optimal time to ensure every hub of your business serves your customers at top efficiency. It may be the precise moment to consolidate certain job descriptions or departmental responsibilities.
Through this process, you can have your people re-apply for each role, and ensure you hire the most qualified, productive, and professional candidates for each job.
If you can, offer severance pay or an extended period of health insurance coverage so your released employees can transition more smoothly. This may soften the blow (and leave you feeling more compassionate.)
With this kind of restructuring, you stand to recoup immediate cash as well as future savings.
Cut big, or go home
When cost-cutting is on the table, analyze and adjust your financial strategy at a minimum of a quarterly basis. When you need to make significant budget reductions, it’s best to do a big sweep at once, “ripping the bandaid quickly”, rather than “death by a thousand cuts.” Your team is likely already on pins and needles. You may be as well but go all in.
When you make your changes, think them out carefully, and act on them decisively, so you don’t have to keep coming back to the budget table with more bad news.
Plus, transparency with all your stakeholders from the shop floor to the C-Suite shows a sense of confidence and collaboration (“we’re all in this together!). Transparency builds trust and loyalty with your team members.
You want them to stick it out with you, right? Be straight with your team right out of the gate on the whys, hows, and whens of your cost-cutting strategy, as well as the results you expect to achieve from your restructuring. Even better, select and invite the input of your trusted leaders in your decision-making process.
Reduce and eliminate, don’t “freeze”
Though hiring freezes are popular cost-cutting strategy tactics in most companies, it’s better to evaluate the bigger picture, even when faced with a crisis. Focus on the costs you can erase from your balance sheet, not the ones that will only come back later to wreck your bottom line.
Why make a temporary spending decision when you can accomplish more in the long term with changes that save you money permanently?
Take the extra time now to find out how simple restructuring, timing of equipment purchase, departmental “needs” evaluations, or better departmental communication can cut down your expenditures for good.
It may be that you no longer need to spend 10K per year on office supplies or an office at all for small teams. Instead, your strategy could be reallocating funds to updating your hardware and software or more extensive digital marketing, for example. Changes like the preceding can positively impact your sales as well as potentially reducing your variable costs.
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