Five Cost Cutting Tips During Tough Economic Times

Small financial moves can make a big difference for small business owners during economic turbulence.  

All I keep seeing in my inbox this week is Coronavirus COVID-19 updates.  I am exhausted with all of it, but I do keep thinking of all of the businesses affected and how they are going to respond.  There is a lot of information flying around about prevention, number of cases, news, and stories of worsening economic conditions.  Beyond what we see happening immediately with the illness itself, business owners had better buckle up, you do have a reason to be genuinely concerned.  Concerned for the sheer fact that our economy seems to be very unstable and there are a lot of unknowns that lie ahead.  

In troubled economic times, there is one thing we can be sure of, business owners and entrepreneurs alike need to start planning for hard times and making serious moves to maintain their financial results.  While it’s tough to do so, it’s definitely not impossible. Cutbacks on spending and reorganization will start to occur world wide as we make a plan to not only sustain but thrive in this environment. Those who jump on board early are more likely to survive. 

Reduce Overhead and Wages

When all else fails and you cannot hit your sales numbers, you have to reduce your overhead.  Every penny you can save on overhead falls right to the bottom line. When the economy is stressed you may even have to drop your prices to get new customers.  Doing so reduces your margins. The only way to survive on smaller margins is to reduce your overhead. Is your office too large; could you share your space with someone else?  If your revenue is decreasing, your insurance probably can too. Are you overstaffed for the amount of work you have to do? Do you need to adjust your marketing efforts? What subscriptions are you not fully utilizing that can be frozen?  Who could tolerate a small pay cut?

Outsource

How much of the work that you’re currently doing in-house could be outsourced for significantly cheaper, without sacrificing quality?  Think about it, an HR manager for $75k/yr or an outsourced HR department for $500/mo? A controller, bookkeeper, and CPA firm totaling well over $100k or an entire on-shore, kick ass accounting department for $5000/mo?  How much work is being performed by employees on salary that could legally go to hourly contractors?

Cut out Unnecessary Spending

Time and time again we see business owners throwing good money at bad, eating out three meals per day, entertaining like millionaires, buying meaningless gifts, doing business with friends at higher rates, buying expensive items that aren’t necessary and don’t change a single thing.  How long has it been since you actually sat down and went though the credit card expenses? I guarantee you, you’ll find pennies laying around everywhere if you take the time to review what’s going out sooner than later. This is a time to put all discretionary spending on hold. Create a spending freeze internally, get creative with your budget.  Do you even have a budget?

Refinance

There is not a better time to refinance than during an economic and financial crisis.  It’s a time to go to the bank in person, sit down and tell them the situation. Form new relationships, explore opportunities, take a step back and analyze what debt you have and at what rates.  You may be able to freeze your principal to pay interest only, refinance at cheaper rates, or extend your payment terms to preserve cash.  

Take Advantage of Government Incentives and Disaster Assistance

This week, the Small Business Administration (SBA) announced disaster assistance loans for small businesses impacted by Coronavirus.  “The President took bold, decisive action to make our 30 million small businesses more resilient to Coronavirus-related economic disruptions. Small businesses are vital economic engines in every community and state, and they have helped make our economy the strongest in the world. Our Agency will work directly with state Governors to provide targeted, low-interest disaster recovery loans to small businesses that have been severely impacted by the situation. Additionally, the SBA continues to assist small businesses with counseling and navigating their own preparedness plans through our network of 68 District Offices and numerous Resource Partners located around the country. The SBA will continue to provide every small business with the most effective and customer-focused response possible during these times of uncertainty.”

Summary

So what does all of this mean for you?  It’s time to make a move, sit down with your leadership team and make a plan for better or worse.  What happens if you don’t hit your sales goals? What happens if cash flow is inadequate during an upcoming quarter?  What happens if you cannot attract and retain the dream team? One thing is for certain, it’s better to be proactive than it is to be reactive.  Making a formal plan and implementing it now could end up saving your business big time. It may actually be your only saving grace. 

 

What’s your plan?  I would love to hear from you at ashley@profitmatters.co!

Ashley Altum, CPA, MBA — The Freedom Gal and CEO at Profit Matters, because your Profit Matters to us!

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