20 Apr Sensible cost management during challenging times
When times are tough, many businesses Indiscriminately slash costs, without thinking about long-term consequences. It can be especially tempting to reduce the business’ headcount given wages are often a company’s greatest expense.
This can be a false economy, as firms will need their best people when economic conditions turn and a recovery phase begins. There are many ways to reduce costs now so the business is in the best possible shape to survive these challenging times and be positioned for growth down the track.
“Assets that are not helping to produce profit can be sold, repurposed or retired”
Don’t slash, right-size
Morris Miselowski is a business futurist and strategist. He says successfully navigating the current climate is more about right sizing than arbitrarily eliminating expenses.
“Severe cost cutting is too aggressive. A better approach is to truly understand the business and what it’s trying to achieve, making sure it has the resources to do this,” he says.
It’s essential to manage human resources costs during a downturn. But this does not mean letting people go just to reduce overheads.“In my model, 60 per cent of the business should be conducted by current staff. They should have the skill set to take care of day-to-day operations and get most things done,” says Miselowski.
“An itinerant workforce should undertake the other 40 per cent of the firm’s activities, drawing on the gig economy. These are people who can be brought into the business on an as-needed basis. But they don’t necessarily have to be full-time staff,” he explains.
It’s also important to take advantage of all the government incentives available, for instance the JobKeeper scheme. This is an initiative that pays $1,500 a fortnight to employees of businesses that have been severely affected by restrictions in place as a result of the coronavirus pandemic, as long as they keep staff on during the crisis and beyond.
“Apply for everything the business is entitled to,” says Maini Homer, founder of business consultancy Tall Poppies Rising. Homer says another idea is to encourage staff to take any leave they are owed now while the business is quiet.
“Do your best to create a win/win situation. Because you want to maintain good relationships with staff now and in the future when the pandemic has passed.”
A new approach to asset management
Miselowski says asset management is another area where businesses can right size their operations.“Review all your physical assets and look at whether they are necessary for the business to achieve its purpose,” he says. Assets that are not helping to produce profit can be sold, repurposed or retired.
Taking charge of expenses
Expense management is another area where many firms can reduce costs. But it’s important not to cut so close to the bone the company doesn’t have the resources it needs to do profitable work. Insurance is one area where cutting corners doesn’t pay off.
Risk is high at the moment, so now’s the time to choose well-known insurers who have a good track record. This helps ensure the process will be as efficient as possible if you do need to make a claim. There are, however, other areas in a business where lower-cost providers can perform the same or similar service as an incumbent without any adverse affect.
“Researching your options when procuring goods and services can result in significant cost savings,” says Homer.It’s also worth asking for short-term fee reductions where possible. You may be able to negotiate with suppliers to drop their costs for the next six months, on the understanding you will continue to buy from them long-term with the potential for them to raise their prices once more normal economic conditions return.
Ultimately, you want to ensure your business is corona-proof now and into the future. See this as a chance to strengthen your operations to withstand any future shocks and pursue new business opportunities as they arise.
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The views expressed are those of the author only and do not necessarily reflect those of Watkins Insurance Brokers Pty Ltd.
This magazine provides information rather than financial product or other advice. The content of this magazine, including any information contained on it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
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Source: – https://www.steadfast.com.au/well-covered/insurance-for-established-business/sensible-cost-management-during-challenging-times