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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