Cost cutting to survive difficult times
If there is a silver lining to any form of crisis, it's that it
really focuses on 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 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 which expenses to trim and how to trim them.
Panic
When the economy rumbles and your sales volumes go down and revenue
is affected, you panic. When profits diminish a little, you become
concerned. Panic is not your friend - it leads to poor short-sighted
decisions. If you eliminate what you need to operate your business and
produce what you sell, you won't 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.
It will be your competitors who will grab them given the industry
knowledge they have. Don't gift your employees to your competitors. 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.
Cheap doesn't mean smart. Cheap means cheap. Smart means making good
decisions, spending where you need to and saving where you can without
sacrificing the quality of your business.
With this focus in place, go through every single expense. It should
be easy to decide which ones support your core and which do not. If it
does not, then reduce it to an absolute minimum or eliminate it
completely.
Do it all at once. Explain the reasoning 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
forward.
Competitiveness
While there's no one-size-fits-all method to cut 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. As a rule of thumb, before any cost cutting measures that may
have a negative impact on the health of the business are implemented,
all other avenues to improve your cash flow and margins should be
explored.
Leaders should be careful not to jeopardise the long-term
competitiveness of the business.
Best option
When everyone else cuts costs and takes a pessimistic wait and see
approach, you can look for opportunities attack your competitors to
encroach into their territories andexpand your base for future growth.
However, make sure that you do not pick the bad customers or
compromise on your good business principles that can affect the overall
health of the business. Remember that 'bad time' will always follow a
'good time'.
When making decisions take the whole cycle into consideration and its
time horizons for better judgment. |