Expense cutting is rampant during times
of recession — and for good reason.
During profitable times, we tend to
spend more and analyze expenses less. Lax
oversight snowballs into financial distress
when the economy downshifts, and businesses are forced to take a microscopic look
at their budgets.
Before you delete a department or lay off
workers, consider whether the net result will
improve the bottom line or sacrifice quality
and customer care.
“While it’s necessary to evaluate and cut
expenses during these economic times, it’s
equally important to continue investing in
certain areas of the business,” says Michael
Coakley, director in the audit and accounting
group at Kreischer Miller.
“Now is the time to analyze the business as
a whole and identify areas that are inefficient
or bleeding money,” he adds.
Smart Business spoke to Coakley about
how businesses can recapture dollars and
reallocate their current resources without
cutting the business down to bare bones.
What should executives consider before cutting staff?
Layoffs are often the first response when
the bottom line needs a boost. Human capital
comprises a significant portion of a company’s overhead, so cutting back in this area
seems logical to business owners making difficult decisions about how to sustain profitability. The problem is, a business cannot
run without talented people. Companies
need strong financial minds, creative marketing professionals, detail-oriented operations
specialists — each brings an expertise to the
table. In good times and bad, their contributions are critical to a company’s success.
Assuming that your business is appropriately
staffed and your workers are productive contributors, think carefully before terminating
employees. Remember, you’ll need strong,
responsible employees to help you weather
the economic storm. Extensive layoffs can
kill morale and negatively affect the company culture. Worse, valuable employees will
feel insecure and start ‘looking.’ Layoffs
should not be your first cut but instead a last
resort after carefully evaluating the company’s operations.
How much can a company cut marketing
without compromising client relationships?
You can trim marketing expenses, but do
not cut them completely. Consider current
marketing activity. What is critical, and what
is luxury? Design a marketing plan that
includes alternatives that will still allow you
to ‘get in front’ of clients and continue your
branding strategy. For instance, rather than
buying premium seats at the Phillies game to
entertain clients, place a phone call or visit
their offices to simply ask, ‘How’s business?’
In the meantime, do not eliminate marketing designed to reach out to new customers.
Whether you get your message/brand out by
advertising in the media, participating in
trade shows or sponsoring community
events, completely stopping these efforts
could damage your ability to gain business
once the economy improves. Think about it.
As other companies curb marketing, if you
continue to get your name in front of potential clients, they will think of your company
first when they begin spending again.
Evaluate the most effective marketing methods that provide maximum returns. If you are
not tracking leads to determine this, now is
the time to start.
What internal processes should be refined as
managers seek efficiencies?
‘Lean’ concepts have existed in the manufacturing sector for some time. Offices have
their own version of lean, which involves,
among many things, reducing the amount of
‘touches’ required to get a product or process
from point A to point B. If a client request for
proposal must be passed through a chain of
four individuals before it can be presented to
the potential customer, how can you ‘lean’
the process and conserve labor and time?
This idea of leaning the company should be
applied to every process and department. By
isolating weak points and improving processes, you can rechannel lost resources (time,
money) back into the organization.
How can a company gain buy-in from
employees ?
Most employees understand the nature of
the economy and will appreciate that the
business is taking a careful look at how to
remain stable. Engage your staff by asking
for their input as you evaluate departmental
processes. Make this a team effort, and insist
that every worker add value to the company
by being more conscientious about spending
and seeking ways to improve efficiency.
During this time, many employees are happy
to stay put — they aren’t looking to jump
careers or change jobs if they are satisfied in
their work environment. Remind them they
are important to your business. You may discover productivity gains as the staff teams up
to strengthen the company’s bottom line.
What additional resources should businesses tap in to during this time?
Boards of directors are important resources, and their varied professional experience can shed light on difficult financial/operational situations that you confront. Make
time for regular board meetings to discuss
what’s going on in the business. Also, rely on
advisers such as your accountants and attorneys to offer direction. Talk to your banker.
Be open, be honest — and listen.
MICHAEL COAKLEY is a director in the audit and accounting group at Kreischer Miller in Horsham, Pa. Reach him at (215) 441-4600
or [email protected].
