Greetings!
There is more to cutting costs than just turning off the lights when you leave the office. Granted, many of us have seen our revenues decline significantly over the last quarter and wonder how we will manage the next few months. This article and subsequent cost-cutting tips will help answer some of those questions.
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Cost Cutting Tips to Survive the Downturn
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Some economists expect this downturn to last through 2009, which will put considerable strains on small business owners. Many large organizations are making across-the-board cuts; others are reducing administrative expenses in an effort to compensate for declining sales. But is it enough?
Drastic times call for drastic measures, right? 
Not really.Before you start taking an axe to your P&L, be careful to think through each expense reduction and ramifications before you start.
Headcount reductions may provide large cost savings in the
short-term, but by cutting them too much or too fast you may be jeopardizing
your growth opportunities in the long run.
Every line on your P&L should meet one of three
criteria:
- Does
it generate revenue? (e.g. promotional
money, sales people, targeted marketing)
- Does
it improve productivity? (e.g.
special software, machinery, etc.)
- Does
it prevent future losses? (e.g.
insurance, tax advisory and legal services)
If you answered "no" to any of these, the expense is most likely
discretionary and should be reduced.
The second question you should ask is "By how much?"
Even if an expense makes the initial cut it should be reviewed for its ROI. Maybe your postal machine improves the efficiency of office mailings, but if you find that you are using more electronic communication rather than postal mail, you can probably return the machine and save money by canceling the lease.
Will cutting office expenses be enough? Most likely not. The only way to know exactly how much to reduce expenses is to play out different scenarios with your financials, determining outcomes if revenues decline by 5%, 10% or 50%. Most likely every process in your organization should be rethought; in fact you may find you need to re-work your entire business model to adapt to the economic challenges of the next year or capitalize on opportunities presented in the downturn.
Still, while you are hammering out significant cost savings or a new business model with your accountant or business advisor there are some things you can do in the short-run to help reduce costs for 2009.
Click here for 10 unusual places to cut costs.
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Profit Point Launches Blog
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Profit Point is pleased to announce the creation of a new blog called "Preparing for the Upswing." We hope it will become a forum to share cost-cutting tips, ways to improve productivity, and also share best practice articles she or her clients have found.
Join the discussion at www.profitpointconsulting.com/Blog
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