As the clouds of recession start to thicken over a broad cross section of industries, the time has come to stop talking about cost savings and to start achieving them. Faced with the specter of weak sales and rampant discounting, business owners must take decisive action to pare overhead, making their companies leaner and meaner and thus more capable of surviving a prolonged downturn.
If you've recognized the importance of cutting the fat but didn't know where to start, this eight-point austerity program can point you in the right direction:
1. Dismiss 10 percent of the employees on your payroll. As painful as this may be, chances are the workers you'll shed were hired to handle an incremental workload that never developed or that has since diminished in the wake of a sluggish economy. Unless you decide on a specific percentage of dismissals and commit to that number, chances are you'll hem and haw and fail to take this critical step.
2. Shift a greater percentage of health insurance costs to employees by having them pay a greater share of the premiums or of the co-insurance costs. With health care expenses rising astronomically, it is wise to take the full burden off the shoulders of your business, gaining a more equitable sharing between employer and employees. In most cases, insurance brokers and carriers can make suggestions toward achieving this objective.
3. Submit all vendor contracts over $2,500 to competitive bidding. While most companies make use of competitive bidding, most reserve it for the biggest contracts of $50,000 or bTC more. This tells vendors that you're willing to pay more than you have to for all goods and services below the $50,000 level.
4. Search out and consolidate redundant operations that have sprung up like weeds inside your company. Assume, for example, that you have assigned a highly paid manager to each unit of your three-store retail chain. Considering that the stores are low-margin, self-service outlets, this kind of managerial coverage may be overkill. Instead, explore the idea of having a single manager float between the stores, supervising lower-paid assistant managers at each location.
The same principle applies to your handling of bookkeeping, maintenance, distribution and promotion. In each case, ask yourself: "Do we really need two or more departments to handle this function?" In most cases you will find it is more efficiently serviced by one consolidated operation.
5. Break the costly habit of using overnight document delivery services when standard postal services will suffice. All too often, companies that forbid employees from making indiscriminate use of long-distance telephone services place no limits on the use of overnight mail.
You can put the brakes on this wasteful spending by demanding that employees justify each use of overnight service. To do so, insist that they write a single sentence explaining why the document had to be there in 24 hours.
Every time this happens, it prompts an employee to rethink his use of overnight services, and the company saves about $15.
6. Put dollar-figure ceilings on travel and entertainment expenses. Many employees see a trip out of town or a dinner with a customer as an invitation to carte blanche spending. Put an end to this by publishing a list of maximum allowable expenses.
7. Take a hard look at company-sponsored programs and activities, killing those that do not contribute to the bottom line. Prime targets include pamphlets, brochures, and yellow-pages ads.
8. For each and every item you buy -- from computer paper to product components -- ask vendors to recommend lower-cost alternatives. Although it is unlikely that you will make all of your purchases on the basis of price alone, the exercise will open your eyes to cost-saving opportunities you didn't know existed.
Involve the whole company in the cost-cutting process -- not by writing management memos but by soliciting their ideas and rewarding them for their efforts. Offering to pay employees 10 percent of the first year's savings on all ideas and recommendations implemented by the company is the best way to build economy into the company's culture.