If a business cuts costs, it’s usually to save on the money that is being spent. However, cutting costs too deeply may actually impact employee and customer satisfaction, and overall harm the success of the business that has been built thus far. In saying that, if cost-cutting measures aren’t employed enough, that can also be a threat to the business’s very viability.
There are a number of ways through which businesses can attempt to optimise and achieve a balance in their cost-cutting strategies, without sacrificing or reducing their overall success.
When beginning the cost-cutting process, align with what the business strategy actually needs to be cut. Rather than approaching the budget with a hacksaw method of reducing the most expensive items, consider optimising the cost against what the business strategy requires from it, and consider the inherent value of what could be cut. Is it something that adds value to the business, despite the cost? Will this cost return on investment against what the strategy purports?
Similarly, do not simply approach cost-cutting with a reduction in staff as a solution to the issue. Reducing staff is merely a short-term approach to cost-cutting that may have a long-term impact on the resources that the business will have available for use.
Instead, aim to optimise the staff available in the business. Consider the expertise that the business will require in moving forward, and plan accordingly. Retain the talent from the existing pool of staff, fill any existing vacancies and consolidate roles where people may be being underutilised. If people involved in the business are underperforming, consider culling these specifically.
Ensuring that employee satisfaction is being fulfilled by the business can assist in cost-cutting, as higher employee satisfaction leads to lower turnover for employees. This measure should cost businesses far less in the long run.
Similarly, in this constantly changing business environment, the impact of COVID-19 has furthered the question of whether or not the way that businesses can operate should remain the common practice. If housed in an office (and it is practical to do so), consider employing remote work as an option or alternative for employees. It can bring down the rent, energy, and other office expenses significantly, while also potentially give you better access to talent.
The overall finances of the business should be looked into as well, to ensure that the costs of financing are not severely impacting the business. Simple measures that can be employed include changing banks to a more cost-effective facility, consolidating credit cards into one with a lower rate, or other changes that may reduce fees and improve access to capital. Similarly, paying bills early or switching to a monthly fee can also improve financial performance, as it can assist in getting the cash flow of the business under control.
Removing non-essential expenses (such as gifts and entertainment) can also be a cost-cutting measure to employ in business. Going paperless, becoming more energy efficient in the office or negotiating with suppliers for more cost-effective alternatives are other similar, simple measures that can be made use of in the cost-cutting approach to business.
Cost-cutting for your business does not have to be a particularly painful process. By looking at your business with a critical, and strategically aligned eye, you can optimise the cost-cutting process to suit what your business needs. For assistance with business planning, cost-cutting, or other business-related advice, speak with us today.