Are there opportunities for reducing expenditure?
Managing your cost base is probably the most obvious place that business leaders look when considering strategies for surviving an economic recession. However, care must be exercised when reviewing which areas of expenditure you can reduce or avoid altogether.
One of the most common failings is cutting costs in long-term strategic areas, or in areas that are not sustainable and yield only short term gains. Employee costs (wages, salaries, benefits, pensions etc) are normally the largest cost to business: avoid the temptation to cut these costs through redundancy or withdrawal of benefits until a proper planned and considered study has been undertaken: instead, consider introducing flexible working hours or salary sacrifice and other tax efficient employee benefits. Deferred rewards/bonuses based on long term success can also be effective.
- Do you fully understand your cost base?
- Which costs are attributable to value creating activities?
- How much of your cost base is fixed rather than variable?
- Could your supply chain be more effective?
- Are you managing effectively your key stakeholders and suppliers?
Consider ways to enhance productivity and waste reduction.
If you are a manufacturer or retailer, there are probably efficiencies to be gained by improving your forecasting processes to reduce levels of finished goods (particularly those that might be perishable or seasonal) or make sure that goods are available when your customer wants them. Can production be optimized to reduce the use of premium labour rates (eg overtime, weekends)? Are production schedules maximized or do order cancellations create production downtime?
Marketing spend is the area that is most likely to assist generate future growth, yet is the area that is most likely to be hit by economic difficulties. Having a clear understanding of what marketing spend relates to value-creating activities is crucial to ensuring that any cuts in spending is made in the right areas: only marketing spend that is marginal or related to loss-making products should be cut. |
