If we, as businessmen, had it our way, we would always have lots of time and energy to check our balance sheets and analyze our expenses regularly, pruning out unneeded spending along the way. But back here on earth, the reality is that the average business can only concentrate on expenses, especially when struggling to get their business profitable again when the economy becomes sour. However, cramming for sustainable profitability is not efficient-wise, and can only result to costly mistakes. And while cutting down is necessary in today’s economic woes, experts agree that entrepreneurs should tread carefully so that they do not cut so deep that they get their businesses in a compromising position for a rebound.
So what should we save and what should we pare off in this time of economic turmoil? Here are three pointers that you must incorporate in your decisions.
When it comes to costly customers, think twice. It is tempting, especially for a fledgling start-up company, to automatically bid low in a high-profile deal with a large and well-known company. But if the work is going to cost your business rather than make money, then you have to pass. Striking a deal with a big company does not immediately equal to success and profits.
Furthermore, you company must always engage through a thorough and transparent process when estimating the cost of projects for clients. This would ensure their agreement to the stated price, and make your business run a lot easier.
Check your tech expenditures. The future is here, but it doesn’t mean that we should invest on it that much. Small businesses tend to overspend on a technology that is not really that beneficial in terms of productivity and efficiency. As a business owner one should learn to separate technology which is necessary to the company’s operations and technology that the company can live without. And when it comes to spending on software licenses, don’t hesitate to renegotiate maintenance fees and haggle, as these software companies are also affected by the recent economic slump and are willing to cut corners in order for customers to stay.
Say goodbye to underperformers. Nothing is as expensive an asset as that of people, so it’s probably of no surprise that personnel decisions gets a lot of the limelight when it comes down to cutting costs. And when the inevitable happens, it is best to identify the bottom 10% performers and then giving out the pink slips. Although it is hard to lay off an employee, but poorly performing ones can only cost you and your business in the long run.
However, this does not mean that you can cut employees indiscriminately. Some businesses have the tendency to unknowingly lay off key performers just because they are well compensated, and this usually results in lowering the overall morale of the company, which in turn results to even poorer productivity. Furthermore, replacing your older, senior employees with more and younger people can also become counterproductive. Although they might not be as energetic as their younger counterparts, the senior staff has more knowledge and expertise in the business and thus makes a lot less mistakes.
This is a dangerous time for business, as production costs are rising while customers are disappearing. However, one should not give in to the general knee-jerk reaction of cutting down whatever the cost. Like a surgeon, a good entrepreneur and business owner must know what to do away with and what to keep.
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