Cost cutting to survive difficult times

If there is a silver lining to any form of crisis, it is a business leader's focus 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.

Being a perpetual tight wad 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 volume goes down and revenue is affected, you panic. When profits diminish a little, you get concerned. Panic leads to poor short-sighted decisions.

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

If you lay off people when you need trained and experienced people when the economy bounces back, you will waste time 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 - so look at the business case for every cost cutting option available.

Get your heart rate back 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.

Cut wisely

With this focus in place, go through every single expense. It should now be easy to decide which 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, it will be much easier to deal with focused growth.

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.

Before any cost cutting measures that can have a negative impact on the health of the business are implemented, all other avenues to improve your cash flow and the margins should be explored as a rule of thumb.

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 to attack your competitors, encroach on their territories and expand your base for future growth.

However, make sure that you do not pick bad customers or compromise on your good business principles that can affect the overall health of the business.

Remember that 'bad times' will always follow 'good times'. When making decisions take the whole cycle into consideration and its time horizons for better judgement.