Wednesday, October 21, 2009

Turnaround Cost-Cutting Techniques

While it appears that the economy is starting to show signs of life, we are a long way from health. Many businesses are struggling and we are providing turnaround expertise. Some will take the advice and be saved. Others may not make it. More than ever, cash is king. Businesses don't go bust, they simply run out of cash. We have written before about cash flow and its importance. Cost cutting has to be effectively married with good planning and effective investment in revenue.

Here are turnaround, cost cutting techniques for you to employ as you bring your business back to health.

1 Start with the plan.
Review your business plan and make sure that it is concise and focused. Build on your core competencies and be ruthless in insuring that only the projects and resourcing in the plan are being pursued. Do not allow business plan creep.

2. Cut cost from the top down.
Starting your cost saving strategies with directors and above first is imperative. This is much more than eliminating bonuses or perks. It is eliminating directors. Each senior person brings with them a set of projects and priorities that need to be resourced if the director is going to do their job. Take a judicious look at what actually has to be done and how many senior staffers are required. Each one removed will take with it significant other savings. But make certain that the cuts follow the plan above. These steps are tough but it sends the message loud and clear to the rest of the company.

3. Get staff buy in.
Cost-cutting is unpopular with staff at all levels. By now, they have been faced with it, not only within your company but with family, friends and others that they know in other companies. There can not be a series of continuing cuts. Follow your plan and make this one last cut and tell the employees that it is the last one. Get them to participate knowing that it can mean solid employment for all who remain. Treat those that must leave with respect.

4. Improve your forecasting accuracy.
Being able to accurately forecast sales by unit keeps inventory levels low and cash free. Many companies forget that as business improves it requires inventory increases to satisfy the new demand and that will tie up cash. Accurate forecasting also enables you to be able to budget for revenue generating spending. This is critical in the turnaround period.

5. Reduce Accounts Receivable.
You are not a bank. At least most of you are not banks and therefore having your customers using your money in the form of unpaid invoices for products in their hands is unacceptable. They are in effect using your cash! Do not hesitate to ask for your money. Clearly, this may be awkward at times but persistence and creativity can pay off. You don’t want to lose the customer but you do want to lose the debt. Get your cash.

6. Cut the Cost of Debt.
Your company may have been forced to extend its debt load during this recession. Now is the time to review it and determine how you might reduce the payments and conserve cash. Credit is still very tight but it is available. Go talk to your banker.

7. Capitalize on technology.
Be open with your clients and establish if your attendance in person is really required. Many companies are using video conferencing or webcams for both client meetings and internal work. Not only does this save travel expenses, it increases the productive hours of each employee.

8. Upgrade processes.
Many companies are still doing business in the manner that they did pre the recession. That won’t work any more. Review your basic processes and streamline them. Eliminate ones that no longer bring a high value to the organization. You will be amazed at the “deadwood” that exists. Automate wherever possible. Better business and better cash flow will result.

9. Outsource.
Outsource when it is not a core competency. There are many other companies in various parts of the world that have the core expertise and can do it faster and cheaper than you can internally. Look for these opportunities and make them part of the business plan.

10. Increase use of consultants.
Many articles advise companies to cut or eliminate consultants, believing that they can be a false economy. This is not necessarily true. We recommend bringing in consultants to do a specific job and capitalizing on their expertise. They can get things done faster and less expensively and make a positive impact on your cash flow. Don’t go for the big names with a lot of overhead. Find the smaller, less expensive but well experienced consultants that fit your budget.

This is turnaround time for companies. The wise will survive and will apply these cost cutting techniques effectively.

Let us know how we can help you improve your cash flow and bring your company to health.



John Maver
Maver Management Group
(925) 648-7561
Maver Management

View John Maver's profile on LinkedIn

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