Guide to Cost Cutting
Expansion makes everyone feel good. Cost cutting is difficult. The most common reason director’s don’t cut costs is that they don’t want to! It is difficult to sack staff, terminate an unprofitable client or take a loss by ceasing an unprofitable product line.
So it will be important to have a disciplined and structured approach to examining costs. Here are our suggestions:
- Communicate widely within the company the need for a cost cutting programme. Explain why it is needed and outline a tight time frame for the initial review. It is often desirable to have a weekend workshop to kick off the process and ensure it is not swept aside by day-to-day management.
- From the start implement a policy that all purchases are approved by you as MD/FD/Operations director/Owner. This will create an environment and culture of cost cutting. No purchases should be approved unless signed by you, which will make staff produce a purchase order and prepare a justification.
- Review all expense claims by staff and reject all that are not really necessary. If you get complaints or murmurings then meet with them and explain the position.
- Ask every material supplier for a review of their prices, can they cut you a better deal? Ask them too for a few extra weeks payment grace.
- Ask the landlord for a breather on rent. Can you pay quarterly in arrears for a while? This helps cashflow. It actually puts you in arrears but that’s ok at this stage.
- Consider appointing an external party as the cost-cutting review leader. They will have no affiliations or emotional attachments and can act as “bad cop” within the company.
- Lead by example – is there something you can do without that will publicly show you are prepared for difficult decisions. For example, can you get by with a smaller car?
- Can you sell any surplus assets to raise cash? In particular, examine old stock lines and conduct a “sale”.
- Cut all overtime.
- Announce and implement a “Job Spill”. Start from scratch and consider what positions and staffing levels are needed in the company. Then fill those positions. The effect of this approach is to firstly justify the position and then fill it with the available candidate.
Our experience shows that directors often find it hard to approach cost cutting in a logical and pragmatic way. Often an external party can act as a catalyst to kick off and implement a cost cutting programme. Our clients will often use Restructuring Works as the “Bad Cop” to implement a cost cutting programme over a short period of time so that the directors can focus on maintaining goodwill with staff and other key stakeholders.
If you would like help in developing a cost cutting programme or would like to discuss alternative solutions why not CONTACT US NOW for CONFIDENTIAL FREE ADVICE and one of our consultants will talk you through this and other possible solutions free of charge.