In Bad Times You Need To Cut Costs, But Where?

In Bad Times You Need To Cut Costs, But Where?


Prices have been rising steadily and some, including petrol and electricity have increased sharply. At the same time sales have been slow, a result of buyer caution in uncertain economic times. Most businesses will be cutting costs to avoid losing money or even to stay in business. But where do you cut? How do you avoid compromising quality, losing vital skills or damaging your brand?

Traditionally the first items to be slashed were marketing, training and bonuses. Retrenchment is increasingly being seen as an everyday tactic to preserve profits. There will be a clampdown on private telephone calls; travel and entertainment will be limited and projects like new IT systems and machinery replacement will be put on hold.

These measures will reduce expenditure, but at what cost to the business? Employees who have worked diligently and done their jobs will resent being threatened by retrenchment and not getting expected bonuses.

Cutting training, having less people and not replacing worn machinery can all affect quality, and reducing marketing, travel and entertainment will hurt sales at a time when you need every sale you can get.

Less obviously, financially driven cost-cutting controls become entrenched and incredibly difficult to remove.

Related: Getting your Company Lean, Mean and Efficient

There are better ways to save

Start by not throwing away things you pay for. Bizarrely, even though you may not realise it, you may be doing this all the time. Obsolete and stolen stock are good examples. So are wasted trips for wrong deliveries or to wrong addresses, sales people making failed calls to prospects who are not expecting them and emergency trips to collect urgently needed stock. Invoicing errors may mean long delays in getting payment.

Incorrectly recorded orders, wrong purchases and payroll queries all cost money. Poor quality control can mean scrapping and remanufacturing or reworking orders. Deliveries rejected by customers forces you to replace the shipment with the correct quality items.

Sending technicians to site to fix problems interrupts what they were doing. All of these mean you have thrown away money, time, customer goodwill and inventory. Be ruthless in eliminating these senseless costs.

Channel your energy


Reduce or eliminate expensive waste rather than focusing on telephone calls or paper clips. Chief among these is wasted time. Payroll is one of the largest expense categories, eliminating overtime is a good start. Overtime often happens as a result of wasted normal time — fix the time wastage and reduce overtime.

Anywhere you see people waiting for anything is a red flag. Get what they need in time to increase efficiency. That will give you more time to generate higher customer satisfaction from quicker supply and less errors, and the capacity to grow.

Management is the most expensive part of payroll and the same rules apply. Managers (including you) doing anything which is not part of their portfolio are wasting time and talent; better use those to develop additional sources of income or hunt down wasteful expenditure.

Wasted space should be eliminated and the space savings used to generate income, by sub-leasing or by turning it into productive space. Storage areas are a particular villain in this area, especially those holding old files.

Digitise the ones you can and throw away anything you do not need, then turn the dusty storeroom into something useful.

Related: ‘Business As Usual’ Could Ruin You

Speaking of throwing away, get rid of the junk customers, products, people and suppliers. Customers who are over-demanding, always complaining and rude, and who never pay unless threatened, may not be worth retaining.

The long standing employee who is kept on out of pity only should at least be given their dignity back; find a more suitable position in an NGO or another company, or help them set up their own business to supply you. Kill the products which are only there for sentimental reasons. Find alternatives to unreliable suppliers with quality problems; they are too expensive to be beneficiaries of your purchasing.

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