Cost management is always important but it’s vital in tough times. It’s tempting to slash any costs you can, but this can be counter productive.
A sudden change in projected or actual income – compared to your plans or prior periods – can trigger an immediate call for cost cutting from your stakeholders (owners, investors, lenders, etc.).
While we all aim to be agile in our businesses, allowing us to react quickly to changing circumstances, it’s not always possible to implement effective cost reduction programmes with immediate impact.
The ease with which we can do this can depend on the size and type of business. For example, it’s easier for larger businesses to take immediate action on staff costs (e.g. through hiring freezes) than it is for smaller ones who may need all of their staff in place to deal with their current level of business.
Outside of staff costs – which we’ll look at in another article, there are a few things that business leaders can do to have an immediate impact as well as identify sources of longer-term savings.
Quick Wins
Identify what can have an immediate impact.
- Projects: Given the change in the business, can they be postponed or cancelled?
- Travel: Remember when we couldn’t travel even 2km? Can technology such as Zoom help reduce motor & travel costs?
- Recurring costs: Look at all costs that are on a monthly or similar subscription. Are they absolutely necessary now? Can they be reduced, suspended or eliminated?
- Change providers: Will you save by changing utility, communications or IT providers? If not, can you negotiate reductions?
- User-based costs: Many services are charged by user by month. Does everybody in your business need everything they have access to?
- Capital: Are there any planned capex costs which can be postponed until business recovers?
Reduce, don’t freeze
If there are activities and related costs that the business will certainly need when the economy recovers, consider reducing rather than freezing or eliminating them. It may cost more to re-start an activity than you’d save in the short term.
Review previous cost reduction ideas
In previous budget cycles, there may have been proposals to reduce, eliminate or outsource activities which were not progressed. Dust these off and have another look.
For example, in a previous role I had often considered changing from a local to a national distribution provider but didn’t see a significant benefit. In the early part of the last recession we reignited the idea and made significant savings by switching. Due to the economic conditions the new provider was willing to make concessions it wouldn’t have considered previously.
Look beyond the immediate
Quick wins like those above should deliver an immediate benefit, but more reductions may be needed if the adverse conditions continue.
As part of your monthly planning and review process (you do have one, don’t you?) consider what else might be required in the medium term and what would trigger that eventuality e.g. weekly sales of €XX or below.
Contact DHKN today and we will help you, your business and your family be financially successful, whatever the economic future holds. You can email me at dhickey@dhkn.ie to start a discussion.
