Cut Costs Wisely

Many companies have experienced or are continuing to experience a decline in sales. For many it has been significant. Without adequate sales, it is a struggle to cover costs and be profitable as well. Some companies have addressed this by borrowing more. While there may be some situations where this is necessary, many times it would be better to cut costs and manage assets and liabilities more effectively. Remember, those loans will have to be repaid at some point and this can place a heavy burden on a company.

There is a Downside to Cutting Costs

You may have decided to cut costs (expenses and asset purchases) as a way to address the decline in business. Good. That is one of the first and more effective things you can do. But, you need to cut costs wisely. For example, when it comes to reducing the number of employees, remember that you may need the services they provide at some time in the future. That means, weigh carefully what employees you cut. There may be a tendency to eliminate positions that have higher salaries. Yet, this could be hurting your company in the long run if the services provided are critical or it will be difficult to find someone as qualified in the future. In other words, this should not be a temporary bandage to cover underlying problems.

temporary bandage

Also, even when you are certain that you are not eliminating positions that are essential to your on-going business, handle the process carefully. Each employee that leaves you can have an impact on the reputation of your company. And, who knows; you may want to rehire them at some point in the future.

What About Asset Purchases

Often it is more productive to address other costs before looking at personnel expenses. In some previous blogs, 3 Low Cost Sources of Cash – Part 1 and 3 Low Cost Sources of Cash – Part 2 I addressed two common areas where cash can be generated and expenditures on assets reduced. Perhaps it would make sense to start in these areas first if you are to cut costs wisely. You may find that this is a much easier way to address cost issues while at the same time avoiding the upheaval that cutting employees may create.

So, think about it. If your business is struggling and you need to cut costs, are you making sure that you do it in the right way?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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