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Continuing an earlier theme of flawed decision making under
pressure, in this article I’m going to identify 5 expenses which, if cut, can
prove to be just too sharp for the business’s own good.
1. HEADCOUNT
Anyone who has ever worked in a large organisation during
austere times will understand why this is top of the list.
How often do struggling companies impose a hiring freeze in
parallel with a wage freeze to try and maintain profit?
So what happens then?
The best people jump ship in frustration at the lack of
recognition of their superior performance…. and are not replaced.
Usually it’s these high performers who were the ones driving
sales and delivery, so when they depart, the company loses more than just their
payroll cost.
A similar phenomenon is often observed at small companies.
For example, a Preston trades firm places a moratorium on
all overtime and lets one of the girls in the office go.
No one really understood what she did anyway.
Well, they find out pretty quickly when a backlog of quotes
and sales invoices builds up, and customers, no longer receiving reminder
telephone calls, start helping themselves to longer credit terms!
2. INSURANCE
When you’re looking to reduce cost, it’s only human nature
to look first at items that don’t have an immediate impact.
What could be less immediate than those insurances which aren’t
legally mandatory?
Chances are you’ll never have to claim on them, in which
case it may appear there’s no downside, other than you might not sleep so
soundly.
Many small business owners who were victims of the 2011 civil
riots complained in the media that they had lost their businesses because they
hadn’t been insured.
Fortunately for them the government set up a scheme to
compensate victims.
They wouldn’t have been so “fortunate” if their premises and
contents had been accidentally destroyed, or the arsonist and/or thieves had been
acting alone.
I’m a great believer in the old adage that you should only
insure against anything you can’t afford to replace yourself.
As a small business owner, if you don’t have business
interruption, building and contents, and key man cover, you’re probably betting your
company and your livelihood on their being unnecessary. Is that really
what you want to do?
3. TRAINING
Over the last 3 to 4 years most small businesses have been
unable to give their employees pay rises keeping them in line with
inflation.
In these austere times, there is a general acceptance, at
least in the private sector, that we all have to pull our belts in. Holding onto
a job, albeit at reduced pay in real terms, is something that many envy.
Investing in training is a great opportunity for small
businesses to show their employees that they are still valued, while generating a
return for the business when they deploy their newly acquired skills.
4. MARKETING
Without attempting to shake things up and stimulate
interest, you’re unlikely to achieve sales growth.
Surveys have repeatedly shown (and not just the ones
conducted by the marketers) that marketing is actually more important in bad
times than good, and those firms that maintain marketing in a downturn are
better positioned to emerge more quickly.
If your competitors are cutting back in this area, then
there is less competition.
This improves value in two ways – consumers have less
competing for their attention; and, each marketing pound should go further, for
example by negotiating with advertisers who have space to sell.
5. PROFESSIONAL FEES
Just what you’d expect a professional services provider to
say! But no, really, are you saving or costing
your business by not getting a legal opinion on, say, a thorny
employment issue and ensuring that you comply with the required procedures to avoid
being hauled up in front of an employment tribunal?
Similarly, unless you have a lot of time on your hands,
aren’t you better off working on your business and leaving HMRC and regulatory
compliance in the hands of a Chartered Accountant. To paraphrase the strapline of an American
colleague, if
you think it’s expensive to hire a professional, see what it costs you to use
an amateur.
One caveat on all of the above is if you can reduce the cost
of any of these 5 expenses without compromising your return, then don’t
hesitate. If you are considering paying less for less, then think hard about
whether it’s really the right thing for your business.
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