When The Economy Gets Tough The Tough Learn To Strategize

how to cut costs when the recession hits your companyThe best businesses, all of the brilliant entrepreneurs eventually face periodical setbacks in their businesses, especially in recessionary times. Once this happens, perseverance and management planning of their finances then becomes the key focus.

There’s a bit more in-house planning, more to manage, the shaving of expenses, this since the company’s once hyper-growth is beginning to stagnant a bit. So what needs to be worked out is implementing a financial backup plan to make it through those dry spells.

These rough spots can and will occur in any company, this because of a recessionary or a negative growth economy. The best cure for this is to implement better cost control.

When it comes to costs, they’re usually broken down into two categories. There are the “fixed costs” and the “variable costs.” The fixed costs, as implied, are the set costs required to run a business which doesn’t change regardless of the revenue which the company is generating.

You carry these “fixed” costs through thick and thin, through the profitable times and the potential losses. The most significant of these fixed costs are the rent or lease, liability insurance, employee salaries, etc.

If you operate a manufacturing facility, then there’s additional fixed costs such as maintenance of machinery and equipment, water and electricity, etc. If you’re able to cut down or scale these costs to reflect the volume of business that you’re generating, you can then consider them as variable costs.

The Cutting Of Costs
Once the cost cutting begins, it’s always the variable costs which are the first to go. It’s a regular and routine exercise to begin cutting spending on all discretionary items, office supplies, employee bonuses, and business travel.

The toughest hit are those employees who are paid on a hourly basis since they are a variable cost, the result being they’re usually asked to work fewer hours if there’s less work.

There are two methods when attempting to keep expenses under control. The most obvious is cutting down and tracking the spending better, while the other is adopting lower cost technologies such as cloud computing, which will effectively move some of the fixed costs to variable costs.

Some Effective Cost Cutting Measures Include:

Reduction Of Employees
Obviously the most unpopular, but what needs to be analyzed is who are the key personnel in your organization. Does your business hinge on the institutional knowledge of certain individuals with specialized unique skills or training.

Did you invest in this knowledge or training. Especially for the highly technical organizations, some employees are just too essential, or will take their trade secrets elsewhere. But if you have others who you feel are redundant or not exactly pulling their weight, a downturn in your business is the excuse to let them go.

An employment team which bands together and gets through the tough patches can build a stronger bond, but it can also resent those who aren’t pulling their weight of the burden.

Adopting New Technology
New cost saving technologies such as cloud-based software solutions reduces your need for the high-cost enterprise based software suites, implementation, as well as the specialized tech employees.

So you may be able to place on-hold, or completely eliminate the investing of the dedicated proprietary tech information employees, or the installing or maintenance of your own servers.

You can do so by deciding on the newer cloud technologies for your IT resource planning, such as, for your sales and marketing, project management, accounting, and customer relationship management departments.

Instead of developing or purchasing specialized expensive software licenses for each department, you can instead spread your payments out on an expense subscription model. This will also help your cash flow as well.

Saving Energy Conservatively
Begin instilling more of a conservation mindset throughout the company. How much is your company aware and think about conserving its resources. Businesses in countries such as Japan, for instance, because of the concerns regarding power shortages, the lights are usually kept off in the hallways, the air conditioning and equipment are turned off in vacant rooms etc.

These resources are used only when needed. Everyone becomes diligent and aware regarding the energy use. It’s instilled as a mindset into their culture, and the lower electricity bills most likely reflect it. So all companies should be adopting the same mindset, and approach the usage of electricity in their own companies differently.

When On The Rebound
Don’t forget planning for the ramp-up process when the conditions get better. It’s important to have a plan when your business begins to pick up again, and know when to go full steam ahead.

What you need to do is keep track of all the vital economic indicators of your particular industry, and watch for signs of improvement. You should know all of the key signals and be ready to pounce out of the starting gates.

If you’ve managed to retain you’re key personnel, that will make the rebound easier to get back on track and resume your growth, rather than needing to retrain new ones.

This is the reason why businesses are now cutting back on salaries, and not letting go of their key employees, to preserve the same team through all of the rough times, rather than letting them disband elsewhere.

The key is to move as much of your fixed costs over to the variable costs category as possible. Then it becomes less likely that you’ll need to make sudden drastic cuts when things turn a bit down. The best times are obviously when it comes that time to ramp things up again.

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