Unforeseen circumstances often lead to unforeseen business losses. When faced with significant drop in revenues and profits, a company’s often first instinct is to lay off workers to cut costs. Businesses should weigh this decision carefully because, while firing employees can indeed cut business costs, it can also lead to low employee morale and put into waste the company’s own investment in the training of these employees.
Instead of cutting labour to save money, here are 10 alternatives:
Implement job sharing
Job sharing was a popular cost-saving device during the financial crisis. In this set-up, two people work part-time for one full-time position. This way, the company saves business costs, keeps talent, and allows workers to still retain their jobs.
Improve staff efficiency
Tighten processes to drive staff efficiencies. This should not be done only when the company has experienced losses but regularly throughout the life of the business. SmartCompany suggests using cloud technology to reduce delay and improve collaboration.
Businesses can also hire one-day CEOs and CFOs to free up the owner from management and finance tasks and focus on other areas of the business. Cross-training employees also enables the company to make changes without affecting the ability to deliver products or services to customers.
Leaseback capital equipment
One of the company’s biggest investment and probably also its biggest cost is its capital equipment. Capital equipment has an extended life so that it is properly regarded as a fixed asset. Some businesses, to improve profit some businesses opt to leaseback the equipment instead of keeping it.
Separate good costs from bad costs
Businesses need to review their product offerings to determine which products or services cost too much to produce. While a product may remain profitable, the cost of creating that product may outweigh the profits. If sales of some products or services are high but failed to add to the company’s bottom line, it is time to change strategy.
Negotiate with suppliers
Especially if you already have good long-term relationships with suppliers, most, if not all of them would be sympathetic to your current financial situation and would look for ways by which they can renegotiate your contracts with them. SmartCompany also advises that you look into imports and the amounts paid on duties, GSTs, and freight.
Get staff to go on enforced holidays
Generally, employers can require their employees to go on enforced holidays. This policy should be expressly provided for in the company handbook to avoid unwarranted labour disputes in the future, which could result to the company incurring more costs.
Cut deals on rent
Rental is one fixed business cost. One of the ways to cut cost is to renegotiate the lease agreement and, hopefully, the rental. SmartCompany advises that it is best to ask for a cutback on rental six months before the lease expires, and not one month before lest the landlord will think you are now desperate and may, worse, increase the rent.
Review all operational expenditure
Review expenses that are necessary to run your business, including rent, utilities, and business travel. Install a good accounting system to identify which of these business costs can be reduced or eliminated. Business travel, for one, can be a big budget buster, especially when you are not a travel-related type of business. Utilities can also subject to review to check if there are redundant services or there are utility companies that can provide better deals.
Separate personal finance from business finance
Especially for sole traders, oftentimes personal and business finance gets co-mingled unintentionally, resulting in mismanagement. SmartCompany suggests looking to money left in cheque accounts that are not interest bearing. There are also a lot of loans on very high-interest rates and there may be a better way to service the loans.
As a way to touch base with your customers, you can conduct a short survey or ask them to fill up a short questionnaire about business and what services they want. Discuss your business relationship and review if each business remains a good fit for yours.
For more business tips, we posted these articles in our blog:
3 Critical Ways Credit Checks Protect Your Business
How to Cope with the 4 Main Causes of Business Stress
5 Websites Every Business Owner Must Check Daily
9 Must-Haves of an Invoice That Gets Paid on Time
4 Smart Debt Management Tips for Business Execs