Positioning your business for tough times in tough times

Fortunately, whilst the economic landscape and circumstances around us have changed dramatically, the basic principle of ‘Revenue (money in) exceeding Costs (money out) = Survival’ has not changed.

 

Unfortunately, we tend to ignore the cost side of our business in good economic times as revenues are higher and easier to generate, resulting in the build-up of cost structures in the business, which later becomes part of the organisational culture, for example big, expensive staff conferences at five-star hotels, business-class travel for executives, fresh flowers in the hallways and reception, and so on.

When times get tough and revenues shrink, it is time to question every single cost within the business and challenge your team to cut costs without affecting company revenue. This usually ruffles feathers and can have a negative impact on staff morale, which in turn could seriously impact on the organisation’s revenue generating capacity.

When done properly however, cost-cutting initiatives can have the desired effect of increasing profits, hence ensuring survival and improving team morale.

 

• Communicate: Do not start a cost-cutting programme before you have communicated the what, why, how and when to everyone in the company.

• Get everyone involved: Turn the ‘problem’ into a challenge and encourage everyone to get on board without delay. Challenge employees to share their views and suggestions. Empower them to implement the required solutions.

• Keep perspective: Keep a balanced perspective. Don’t jeopardise the future strategy and fundamental building blocks of the company. You may look like a hero today by cutting costs quickly and effectively, but tomorrow you may not have a business.

• Sweat assets: We tend to focus on operating costs, yet assets that are unproductive are liabilities and therefore represent a cost to the business.

 

Increasing revenues in tough times is difficult. One person’s revenue is another’s cost and if your customers are implementing cost-cutting initiatives the consequence can mean declining revenue. To maintain and even expand your revenue in the hard times will require you to think differently:

• Buy-down options: Can you offer your customer a ‘buy-down’ option? Some customers may want to buy a less expensive version of your full product option. In the case of insurance, the customer may be willing to stand in for a much higher excess amount in order to cut their pay-away premium.

• Discount long-term commitment: This may be a good time to secure long-term contracts with customers by offering a discount. Your customers will be most open to discount offers during tough times. Be proactive – try to get some upside and secure commitment.

• Keep in close contact: In tough times, your competitors will up their game. Increase your interaction with clients. Don’t ever let them feel that you are taking them for granted, especially in hard times when it is likely that they are reviewing their current relationships with suppliers.

• Cash discounts: Offer discounts for up-front payment. Some customers who are cash positive will want to take advantage of the discount as they will see it as lowering their costs. Be very careful about extending credit terms beyond your normal parameters. Not being paid for your product or service is the same as giving it away for free and no business will survive that game for long.

In hard times, it is very often these non-financial aspects that will win the day. Keep communication transparent and open with all your stakeholders at all times.