Save Your Business in 60 Days: Cutting Costs — Part 1
Even the most successful businesses can face hard financial times. When in crisis, there are two main strategies to save your business quickly — (a) cut costs, or (b) increase sales. By taking immediate action, you can revive your business or buy time to create a long-term recovery plan. In this article, we will discuss the first strategy of cutting costs, and tactics you can use in 60 days to have the largest impact and save your business:
1. Cut Labor
Labor is often the largest expense on your balance sheet, and thus, the fastest way to offload sizable costs and increase net revenue. Although terminating employees can be a difficult decision, if you choose not to act, there will be no business to employ anyone at all.
- Layoffs — Let go of individuals, entire departments, or consolidate roles. Motivate remaining employees by explaining that they are top performers, and offer small incentives for hitting goals as the business recovers.
- Reduce hours — Move full-time employees to part-time, or eliminate overtime for hourly workers. Trim the hours allocated to long-term projects, so you can focus on near-term deliverables.
- Furlough employees — Request that some or all employees not report to work and not earn a wage for a period of time. The period could be one day per week, or one week per month, etc. Once furlough ends, the employees return to their jobs, which avoids the significant costs of hiring new staff.
2. Negotiate with Vendors
Any vendor or a third party you pay to conduct your business is eligible for negotiation on fees. Don’t be afraid to ask for changes, as most vendors would rather keep your business than lose it entirely.
- Pay less — Explain to vendors you would like a reduction in overall fees, based on your status as a valued customer.
- Pay later — Ask vendors for a deadline extension in making payments to them. (Note: This may solve cash flow issues more than overall cost issues).
- Eliminate extras — Cut a vendor completely if they are non-critical to your business. Examples include in-office catering, employee gym memberships, etc.
3. Streamline Operations & Reduce Expenses
Finding efficiencies within your business reduces overall expenses and allows you to spend more time on the parts of your business that generate the most revenue.
- Drop unused space — If you cannot negotiate a better rate on your space of business, drop the property or lease completely if it is not critical to your business. Letting go of unused/underused space allows you to reduce high fixed costs.
- Outsource — Transition any remaining essential functions to on-demand or technology-enabled providers, where they can be performed at a lower cost than a full-time hire (e.g., legal, accounting, invoicing, or IT).
4. Suspend Business Partially or Temporarily
Discontinuation of your services for a period could be just enough time to recoup losses. Focus on filtering out less profitable periods, especially if your business is seasonal/cyclical.
- Limit services — Move to reduced hours of service. Consider closing for specific hours during the day or specific months during the year.
- Close down — Halt your business for an extended period. You can use this time to consider funding options (e.g., fundraising, loans, or lines of credit).
When your business is facing financial challenges, take the short-term actions necessary to cut costs. Acting quickly and making tough choices can improve your chance of survival during a difficult stretch. In the next part of this series, we will discuss how to save your business using tactics around increasing sales.
Kaego Ogbechie Rust is CEO at Foresight Advisors — working with foundations, investment firms, non-profits, and for-profit ventures — offering comprehensive support across vision & strategy, investing & financing, and operational planning during critical periods of your growth.
If you’re looking for help, contact kaego@foresightadvisors.com or visit www.foresightadvisors.com.
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