The three underpinning principles of business — known as the Golden Triangle: marketing & sales, cash control and staffing — should always be at the forefront of a business owner’s mind. But when times are good, complacency sets in. As a recession looms, I urge you to review all three, and this article focuses on the most immediately controllable: costs.
The secured work and work in progress is the only income you can be sure of. Assuming cash collection is occurring when it should and you are achieving the maximum profit the market will bear, it is wise to immediately review your costs for the next week, month and quarter and identify when cash will start to be consumed.
Act Decisively and Quickly
Going into a recession, the fatal mistake business owners make is not taking decisive action quickly enough. They put off making the difficult decision to cut costs, which eats into cash reserves and invariably means that cuts later must be deeper and more disruptive.
Line-by-Line Cost Review
The first thing to do is a line-by-line analysis of invoices. Interrogate each one and see what can be not ordered again, reduced in future, or changed for a cheaper alternative. All sorts will be highlighted, from office consumables to express deliveries caused by disorganisation. Cut the waste and put processes in place to avoid them creeping back in. Resist the temptation to cut marketing and training — these are fundamental to the smooth running of the business and cutting them will be detrimental to incoming work and efficiency.
Restructuring Staff Costs
Reducing staff costs is more difficult, especially in small close-knit businesses. The instinct is often to keep versatile people who can cover several roles, even though they may be more highly paid. But versatility comes at the cost of productivity and motivation. The better option is to consider the projected income, design an ideal organisation structure for that level of work, and then appoint the best people to those roles. Some will be retained, some retrained, some recruited, and some released. The net effect should be the saving required to accommodate the projected reduction in income.
The cut in staff is best done once, so everyone can regroup and move on. Doing multiple cuts is like a death by a thousand cuts, and merely unsettles those who remain.
Fixed Costs and Premises
Finally, look at the costs which take a long time to change. The fixed cost of premises can be a burden as income reduces. Look at any break clauses and ensure that you do not miss giving notice at the right time if you need to scale back.
Everyone believes they are efficient, but with a looming recession, no stone should be left unturned when examining costs — otherwise reserves will be eaten into and the profit available to invest will be reduced.
