Many business owners have seen that inefficiencies develop during times when the company is focused on sales growth versus cost containment. Expenses, and the containment of them, become secondary as long as the products/services are delivered to the Customer. Often, the first reaction to cutting costs is to cut payroll. That’s not always the best thing to do. Where do you go from there?
The answer is in the details. There are many and various ways to reduce costs. You may not be able to reduce costs by a large amount all at one time but may need to do it slowly, a “Penny at a Time”. Here are some suggestions that could be useful:
- Meet with your major customers and suppliers to better understand their business needs and how you can work together. Adjust your processes to better meet their requirements.
- Evaluate your payroll hours to determine where inefficiencies are. For example, if you deliver to your customers with your own trucks, consider changing the driver’s workweek from 5 days/week @ 8 hours/day to 4 days/week @ 10 hours/day. Your drivers can make more deliveries per day and, by staggering the schedules (i.e. employee A works Monday-Thursday, employee B works Tuesday-Friday, employee C works Wednesday-Saturday), you could add a 6th day of service while controlling overtime.
- Alternatively, consider changing your workweek for all employees to 4 days/week @ 10 hour days and closing the facility on the 5th day. With proper energy management, you can save substantially on your utility bills.
- In addition to the above, have an audit done of your energy, telecom, waste management and other costs. There are a number of companies that can do this, they typically take a % of the savings but you it doesn’t cost you anything if they don’t find savings.
- Ask your employees for their cost saving suggestions – offer a meaningful incentive program if the suggestion is implemented!
- Review paper processing and workflows. If you have processes that requires multiple “touches”, change it! The goal is to minimize non-productive time!
- Monitor, track and evaluate your inventory. Old and slow turning inventory costs you money!
- If you’re currently paying your employees weekly, reduce the frequency of their paychecks. Also, if you are processing payroll internally, consider using a 3rd party payroll service.
- Network with other business owners outside of your industry. Beg, borrow and steal ideas that will work for you (nothing proprietary though). Since you’re networking outside of your industry, these other business owners will be more likely share their success stories.
- Make sure your financial reporting system(s) are in order, that they work consistently and you understand the information you get from the system(s).
So the simple answer to a difficult question: How do I continue to reduce costs with a minimal impact on my ability to service my customers?
Answer: Think outside the box.
I hope these ideas help stimulate your thoughts on operating your business. A strategic thinking CFO can help you manage this process in developing specific initiatives to establish and meet your company’s short and long-term goals. Don’t wait until it’s too late!
If you would like to discuss the ideas here in this blog or other aspects of your business, please contact me by e-mail at firstname.lastname@example.org or by phone at 704/651-2216.
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