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  • Andy Stillman

Cost Reduction in the Current Economy

So, we have been punched in the face pretty hard by Covid and now we need to get up off the mat. Businesses in most industries are hurting and many owners and managers are not sure what to do next. Developing an updated strategy is a logical first step – which should be designed to serve as a fluid roadmap of how to move forward – and is the subject of an earlier blog post. Once we have that strategy in hand, we can begin to execute the changes we must make. There may be changes to our products, manufacturing, delivery mechanisms, customer bases, marketing, locations and overall business structures. One of the more necessary things we will need to do is to have a hard look at the cost structure and search for opportunities to become more efficient and aligned with our new strategy. Ultimately some of these decisions may be painful, but they will be necessary for the survival of the business overall.

As we look across the cost structure of the business, we should consider classifying and prioritizing our costs into one of three categories:

  1. Must have to survive to keep the lights on

  2. Should have to run the business, but could survive without it for a while

  3. Nice to have – which is everything else

There is potentially a fourth category – Don’t Need - but it is likely these will have already been addressed (or should be immediately).

This methodology should work for most cost categories e.g. staff, consultants, marketing, technology (hardware / software), debt, other professional fees and real estate. Any cost reductions should start with the “Nice to haves” using a data driven and objective analysis that uses the updated business strategy as a framework. Take the time to carefully go through the costs, develop a timing plan to eliminate some costs until your forecasted profit matches your needs and expectations. This may cause you to rethink things like technology investments – some you will want to accelerate and some you will want to put on hold as the calculus behind the projects will likely have changed.

Additionally, it is likely that you may be able to reduce costs and not eliminate the related services by re-negotiating with your vendors. Just about everything is negotiable right now and most vendors would rather have some business than none. If vendors won’t negotiate, perhaps you can find an acceptable vendor at a better price. Don’t be put off by existing signed contracts – if you don’t ask, you don’t get.

Having someone dedicated to help with an objective viewpoint and the right experience will be immensely helpful in terms of timing and identification of opportunities.

Some of these decisions will be difficult and certainly they should be done with the longer term in mind, but survival is the key right now. The sooner you start the better.

Please contact me if I can help you with your business and specifically with your efforts to reduce cost.

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