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Sunday, 8 April 2012

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Slashing expenses to survive difficult times

If there is a silver lining to any form of crisis, it's that it really focuses a business leader's attention on better cost management. However, all too often the lessons learned in an ailing economy are forgotten when good times return. For long-term success, keeping your expenditure low and your profit margins high has to be a top priority regardless of whatever else is going on. But simply being a perpetual tightwad isn't the answer.

Often you have to spend money to make money. The key to successful cost control is understanding what expenses have to be trimmed and how to trim them by.

Panic is not your friend

When the economy rumbles and your sales volume goes down and revenue is affected, you panic. When profits dip you become concerned. Panic should not be your 'friend' - it leads to short-sighted decisions.

If you eliminate what you need to operate your business you won't be able to keep up when customers do start buying again.

If you lay off people when you need trained and experience people when the economy bounces back you will waste time in recruiting and training people anyway.

It will be your competitors who will grab them given the industry knowledge they have. Don't gift your employees to your competitors - so look at the business case for every cost cutting option available.

Get your heart rate back down to normal and then peruse the options available.

Just because things are cheap it doesn't mean being smart.

Cheap means it is really cheap! Smart means making good decisions, spending where you need to and saving where you can, without sacrificing the quality of your business.

Cut wisely

With this focus in place, go through every single expense. It should now be easy to decide which ones supports your core and which ones do not. If it does not, then reduce it to an absolute minimum or eliminate it completely. Do it all at once. Explain the reason behind it to everyone and get past it.

Forget growth projections for now. Work with what is real and what you know for sure. When you reset the business to match where you really are, it will be much easier to deal with focused growth from there onwards. Spend money to maintain competitiveness While there's no 'one-size-fits-all method' to cutting costs, simply slashing all your expenses is not the way to go. Perhaps even more important than knowing which costs to slash, is knowing which ones to spare. Before any cost cutting measures are implemented that can have a negative impact on the health of the business, as a rule of thumb all other avenues to improve your cash flow and the margins should be explored. Leaders should be careful not to jeopardise the long-term competitiveness of the business.

The best option is to attack weakening competitors to grow the business When everyone else cuts costs and takes a pessimistic wait and see approach, you can also look for opportunities to attack your competitors and encroach into their territories to expand your base for future growth.

However, make sure that you do not pick bad customers or compromise your good business principles that can affect the overall health of the business. Remember that the 'bad time' will always follow a 'good time'. When making decisions take the whole cycle into consideration and its time horizons for better judgment.

 

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