Where are the best areas to look for efficiencies in operational procedures?
Many of our clients have found significant savings by improving their procurement process. This usually involves using a consultant to evaluate and compare specific large expenditures to the market to determine if optimal pricing is being received. Oftentimes the savings are dramatic. Common areas to review are raw materials, freight and shipping, utilities and supplies. Usually, the fee for a study is a percentage of the savings.
Get rid of obsolete or bad inventory — recognize the loss. Write off bad receivables.
Review job descriptions for duplications or inefficiencies. Be careful, though, there is still a need for segregation of certain duties and strong internal controls. Employees may be more tempted into inappropriate actions such as fraud during economic stress.
Depending on the industry, increase inquiries as to customers’ financial health and sustainability. Obviously, adjust credit terms accordingly. This is especially important for new customers, some of whom may have been cut off from their old suppliers for lack of payment or slow payment.
What would happen if a major customer were lost? Would the business have to cut back staff or reduce hours or production? Have a plan in place for the first 24 hours, 48 hours and the first week after the loss of a major customer.
How are vendors doing? Could their ability to supply inventory become an issue? Now may be the time to establish relationships with alternate vendors — even at a less favorable price point.
Are there issues related to employment that business owners should be more aware of during this time?
If the business doesn’t have a relationship with an employment attorney, now would be the time to start one — before executing any staffing decisions. A few hours of time evaluating procedures and policies on the front end may save a lot of heartache and expense on the back end.
If the business needs to reduce staff, owners should try to be creative with severance (assuming they’re in a financial position that allows). For example consider paying health insurance beyond the normal term. Little things may create good will. When times turn around, valuable former employees may be more willing to leave their next position and return. Be sure to check with an attorney before making any commitments.
Businesses can no longer tolerate ‘dead wood’ or underperforming family member employees. They may need to be removed from daily operations to save the business. Family members may still receive the benefits of ownership (when there are some) but not compensation for ‘services.’
Reduce overtime and benefits. Employees may be willing to do more in order to avoid reduction in base pay. Only cut pay as a last resort. Be cognizant of labor law issues, though, when employees are working more hours for the same pay.
This is probably the worst economic environment that most business owners have ever faced. However, like all other tough times, this recession will end. Those businesses that use this opportunity to improve their overall operations will be very well positioned for significant growth and profitability when better times return.