Cost Control Archives

Reducing Your Cost Structure

“It’s not what you pay a man, but what he costs you that counts.” —Will Rogers

Good business leaders understand that having insight and control over the company costs is vital. Low overhead and a surplus of cash is a recipe for a financially successful business, but when an unforeseen global pandemic steals customers away from your business model, what is your response?

If you are like J.Crew, Neiman Marcus, or Souplantation, the solution is to cut employees loose, shut your doors, and hope that the financial aid from the federal government is enough to pay your essentials bills until the mess dies down.

However, if you are a smarter leader with an insightful team by your side, you can reduce your cost structure and keep your business alive during the midst of it all.

We want to take some time to be that insightful team for you. Below, we highlight the key ways you can proactively reduce and control overhead rather than making severe deep cuts.

During the uncertainty of this current economic environment, there is no better time to address leaning your company. Taking an intellectual dive into the inner workings of your company using the following ideas is one way to evaluate what is working and what is not.

Idea 1: Speak With Lenders

Fostering a better relationship with each of your lenders is one of the first steps we recommend taking during this time. A simple phone call to your banks, credit unions, and other money lenders will help to keep lines of communication open.

Not only that, but it will help you establish a relationship of trust if you initiation the call. When you have the lender on the phone, also be sure to ask about some of the following:

A detailed review of the terms for all your business loan agreements and lines of credit
The option of refinancing debt to extend terms and reduce payments
Ask about reducing interest rates on loans and credit cards
Try requesting a credit line increase for credit cards
Consider negotiating a way to pay only interest on the debt if finances become too tight

You don’t know what the lenders will say until you ask, so try and negotiate the best terms for your business and see what options are presented to you.

Idea 2: Seek Financial Aid

The federal government has been rolling out a variety of financial aid packages for businesses to choose from during the COVID-19 pandemic.

The three large government options available include PPP, EIDL, and Main Street Lending program.

The Paycheck Protection Program stems from the CARES Act as a way for business owners to help pay employee salaries, benefits, company bills, and make other vital financial payments to keep afloat.

The Economic Injury Disaster Loan Program is part of the Small Business Administration’s federal assistance for the private sector. It can provide up to $2 million to small or private businesses and non-profit organizations regardless of whether the applicant sustained physical damage from the pandemic.

The Main Street Lending Program is the newest program announced by the federal reserve and was specifically established for small and mid-sized businesses that were financially stable before the coronavirus pandemic. Roughly $600 billion of aid is accessible for these companies.

Another option is to seek private grants from big organizations. Please do some research on grants.gov or reach out to our team for a few suggestions.

Idea 3: Review Your Contracts

This might be one of the easier ideas on our list! With that, you should make efforts to understand how your business is using the space you are in and how it might need to expand or trim in the future.

If your lease is nearing its end, consider this as an ideal time to renegotiate on the original terms. Some options include subleasing the space, taking over a new and less expensive commercial real estate location, or taking advantage of a shorter-term lease from your landlord.

Idea 4: Boost Incentives

Now more than ever, your customers have a reason to zip up their wallets and pour over their credit card billing statements. The best thing you can do to ensure your services are billed continuously is to show their value. If your customers understand why they need your products or services, then you are appealing to the financial side of their rationale.

Once you feel you have established a customer relationship based on trust and necessity, consider rewarding or incentivizing them by discounting early payments, offering special pricing on new product launches, or giving coupons to loyal customers.

You can expect that each of your customers is struggling in their own way, and so your overall goal is to ensure they feel valued and that you are continually providing real value. Take this time to look beyond the numbers and understand your customer’s business strategy and how you can further support them in reaching their goals. Need more help in this area? Call our team of experts for even more advice.

Idea 5: Look Beyond The Obvious

Unfortunately, one of the first places scared leaders will choose to cut back is by way of their employees. We don’t believe this action is the ideal way to reduce your cost structure.

Layoffs are harmful to the remaining employee’s morale and productivity. They are working in fear rather than working to continue the mission of the company.

While there are times when addressing your labor force is a crucial factor for your business’ survival, it is crucial to look beyond that channel at the beginning. Before heading down the path of layoffs, consider these other roads first:

-a reduction to working hours
-furloughs
-decrease or eliminate bonuses and performance pay

Consider modifying the benefits and compensation plans as a way to minimize costs. Ultimately, many of these considerations will positively or negatively impact your business. Think through your plan and communicate your strategy with your other business leaders before taking action.

Final Thoughts

With the right information, leadership, and choices, reducing your business’s cost structure doesn’t have to be incredibly painful. The best outcome is when you can lean out, keep your incredible team, and envision a successful future.

Remember, communication is essential during this time. Answer all the questions, quell all the fears, boost everyone’s morale, and be as proactive and transparent as possible.

If you are looking for more ideas on how to trim down the excess costs of your company and how to recession-proof your business, you can read one of our most successful blogs linked below.

Call us for help taking these ideas and putting them into action. Our team of experts has helped countless businesses trim down their costs and can answer any questions you have about this process.

Where to Invest and Where to Cut? Smart Decision Making Based on Dispassionate Financial Analysis

Where to invest a company’s finite resources is one of the most important decisions faced by business owners—and where they spend a significant amount of time. When companies have poor visibility of financial information, it undermines management’s ability to make informed decisions on where to invest money and where to cut spending.

Choosing Where to Invest

Successful investment management strategies rest on the anchor of good financial information. It is critical that decision makers have accurate and reliable financial information (historical and projected) on the performance of various departments, product lines, services, etc. Only with this visibility can decision makers be provided with clear choices which enable them to make strategic decisions about which areas should get more resources and which areas should receive less based on dispassionate hard facts.

Cost Cutting vs. Cost Control

The best cost cutting strategy is to have robust cost control in place from the beginning, making a cost cutting strategy superfluous. But let’s face it, even the best run businesses run into snags and bumps which require a cost cutting program at some point.

Across the board cost cutting (e.g., mandating each department, business unit, product line, etc. cut 10% of all costs) is never the right approach. Rather–similar to determining where to invest–when deciding where to cut costs you ideally want to have 100% visibility of direct spend (e.g, raw materials) and indirect spend (e.g., rent and utilities) across the entire business and the ability to allocate that spend to the various products, services, or strategic priorities they relate to.

It should be said though, cost cutting is not an end game. Without a good cost control program, cost cutting will be a futile exercise as any gains made will eventually reverse as cost creep back into the business.

The Budget

The budget, when used correctly, is the single best tool for managing your investment plan and controlling costs. It is important that the budget is based on reality and that there is a clear understanding of which line items are impacted by various actions the company intends to take.

It’s also important to manage the budget by individual line item, not by department, unit, or other overall totals. This is because timing differences in the accounting for various transactions can give the appearance of favorable variances, offsetting other over-budget line items; however, when those timing differences catch up to you, it may be too late to take corrective action, or at a minimum, you are months behind.

The Role of Accounting

Accounting plays a central role in bringing transparency and visibility to key financial information and in supporting budget performance analysis. The bottom line is that having accurate, reliable and appropriate financial information is essential if you want to make the best strategic decisions for your business.

Improve Decision Making Through Visibility of Financial Information

At Signature Analytics, we work with our clients’ management teams to ensure they have the financial information they need to make the best decisions for their company. This is accomplished by producing a detailed understanding of the cost structure of the business, as well as the key performance indicators associated with each product line and revenue stream of the company. This analysis is then used to improve budgeting and develop a robust cost control program.

We can also provide accurate forecasts and budgets that enable our clients to properly manage costs on an ongoing basis and improve cash management strategies. All of these accounting and financial reports empower our clients with the financial information they need to make smarter decisions based on dispassionate financial analysis.

Want to learn more about all the ways Signature Analytics can help improve your decision making through visibility of financial information? Contact us for a free consultation.