Cutting expenses to excel in difficult times | Sunday Observer

Cutting expenses to excel in difficult times

17 January, 2021

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.

Covid-19 forced companies to cut costs aggressively in areas one would not have thought about otherwise. 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 which expenses to trim and how to trim them.

Cheap is cheap

When the economy rumbles and your sales volume go down and revenue is affected, you panic. When profits diminish by a little bit, you get concerned. Panic is not your friend – it leads to poor short sighted decisions.

If you eliminate what you need in order to operate your business and produce what you sell, 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.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 cutting down fat certainly is a wise decision.

Cut wisely

With this focus in place, go through every single expense. It should now be easy to decide which expense supports 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 onwards.

Maintain competitiveness

Covid-19 may have paralysed many of your competitors. Some of them may be under tremendous stress with markets shrinking and revenues getting impacted.

While there’s no one-size-fits-all method to cutting costs, simply slashing all your expenses is not the way to go. Look at return on investment of some new marketing, sales or new product development investments to capitalise on the emerging opportunities in the new normal world.

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.

Best option

When everyone else cut costs and takes a pessimistic wait and see approach, you can also look for opportunities attack your competitors to encroach into their territories to expand 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.