The Alarm Has Sounded. You Need to Cut Costs.

When a business is in trouble and needs to cut costs, careful consideration is important. Often times, good managers use short term thinking that can cut a budget's nose but spite a business’s face. Many business owners get the cutting knife and do more of a hack job then applying a sense of purpose and goals based strategy to the cuts.

There is no one magic solution to easily reducing costs and if that were the case, it would have been obvious and performed already.

Here are some practical tips for cost cutting without creating massive disruption in your business:

Consolidation of resources as a strategy

Training sessions, celebrations and travel are all areas where savings can be readily found with some pre-planning.  Can we use technology (such as go-to-meeting) to reduce travel?  Can we combine trips and meet two or three customers on the same trip?  It sounds so simple, but many times is overlooked.

Companies sometimes target activities that may not immediately appear value added. Celebrations may not seem important but play a critical role in creating company culture. Combining certain functions like a retirement dinner and staff service awards into a stand up reception with appropriate catering can save a lot of money and improve human connection within your organization.  Think combination and consolidation as a strategy!

Personnel as a strategy

Your job as a manager and owner, according to Jim Collins, is to get the right people on the bus, in the right seats and doing the right job.  There are usually several situations that are known by managers to be an issue but haven’t been acted on because of various barriers.  Your job is to determine if the barrier to action is real and what can be done even before job elimination.

Using systems like process mapping is extremely effective in helping see how waste can be eliminated.  While it may be the case that there is not enough work, often times efficiency and resources assigned to a task can be better arranged.  This review allows you to enact a hiring freeze instead of replacing positions all the while improving performance, morale and the bottom line.

Your business strategy and plan

Now is the perfect opportunity to make sure that your business activities align with your business’ plan and goals. Review the activities and associated expenses that are not propelling your business down the path that you have laid out for success. If they can be easily eliminated their resources can be invested in activities that are aligned with your growth plan.

Harvard Business Review has an excellent article on cost savings.  The authors suggest that managers may need to find 10 different methods for cost savings.

Exercise Major Caution

Don’t make budget cuts to spite poorly performing areas of the business.  It can seem like a good idea at the time, but random cutting will have devastating longer term impacts.

When tightening the budget, marketing, staff training, management skill investment and celebrations are all areas that managers and owners must proceed to consider with high amounts of caution.  We have seen management teams make budget cuts to the marketing department in an effort to avoid “bad things” from happening only to cripple the company’s sales down the road.

Be careful how you cut. Be creative how you cut.

Use this process as an opportunity to work with your team and not against them.

Ultimately, this will make your entire organization more successful.

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