While business should alway keep an eye on costs, the importance seems greater when business is bad. These time frequently cause business owners and managers to reevaluate everything from their business bonus structure all the way down to the brand of pens they use.
Many small business owners are experts when it comes to producing their particular product or service, but may not as great at managing the “business” aspect of things. This brings me to the purpose of this article which is managing overhead.
Think long and short term
Go for the low hanging fruit first
Remember that Everything is negotiable
Don’t forget your purpose
“Share” in your employee’s pain
We must first identify why we are examining overhead, is the company in serious trouble, trying to avert major problems or trying to streamline operations. The answer to this question allows us to put the remaining items into context.
Think Long & Short Term: When reviewing your cost structure consider your situation. If you are struggling to stay alive cut everything that is not absolutely necessary. It doesn’t really matter what the company will be doing 5 years from now, if it won’t last 6 more months. Short of that consider the impact of your cuts. What impact will they have on long term efficiency and plans. Consider where you want to be and cut anything that does not go towards that end. Analyze every line item and take NOTHING for granted.
Low Hanging Fruit: Look at the biggest costs first, typically these are people, facilities & benefits. Look closely at the cost benefit ratio of each employee. Carefully evaluate exactly what each person provides for the company, if they are not pulling their weight it’s probably time for them to go. If times are really tough, consider an “across the board” pay cut; this will not be popular but it is your job to explain what happens if you don’t cut costs. Another big cost is employee benefits, consider less expensive health coverage, larger deductibles etc., sharing some of the company cost with the employee. Again these are not popular, but you need to ask the employees if they would rather have more expensive health care, or none at all.
One huge expense is facilities. These costs cannot be changed easily, but they can be changed nonetheless. Is your building too big? Do you have too many locations? Did you expand too much when times were good? You may need to consider closing locations or moving. This can be expensive and will likely require a capital commitment from you, but it may be the only option to keep your business alive.
Everything is Negotiable: Remember that the answer is always “NO”, if you don’t ask. You may need to renegotiate contracts. You may need to cancel contracts or back out of leases. These are always unpleasant, however if the alternative is to close the doors they may be necessary.
Don’t Forget Your Purpose: And don’t forget to communicate this purpose. Every decision you make should be guided by the question “Does this get me closer to where I want to be?” People frequently get so caught up in doing something that they forget WHY they are doing that thing. Maintain focus, be efficient and don’t waste time or resources.
“Share” in your employee’s Pain: Park the porche in the garage, nothing will put damage your efforts more than telling your employee’s you are cutting their pay more than seeing you pull up to work every morning in your shiny “speed machine”. If you tell your employees they now have to pay for their own health insurance, you do the same. This is obviously confidential information but word always gets out. This seems obvious, but it’s amazing how many owners don’t think of these things. Take nothing for granted and ask people what their perceptions are.