You need to spend money to make money, at least that’s how the saying goes. But sometimes we need to really look at how that money is being spent, especially during a time of crisis. Any business looking to come out of this on the other side needs to consider cutting costs to remain viable.
We all understand that the world is currently amidst a crisis due to COVID-19. The effect it is having on people’s lives, businesses, and health is tremendous. People are out of work, school’s have gone to remote learning, and some necessities (toilet paper!) are sparse. In a time of crisis you cannot proceed with business as usual.
Do you know the steps to take to help your business to weather the storm? What questions should you ask? We have some advice for you here; read on for the steps we recommend for cutting costs and making adjustments to help your business with crisis management during a time of financial uncertainty.
Step 1 – Be Informed
Every crisis is different, so understanding the specifics of the current situation is important for crisis management. What is currently happening, what will happen because of this, and how will things change? Gather data about the projected length of the crisis, what it means for the world around you, and how it may specifically affect your business, and businesses with whom you work .
Use credible sources and reliable news outlets to stay informed. Avoid media overload and don’t speculate based on information you don’t have. Information is important, but it is never a good idea to over consume or make assumptions that can lead to panic. Stick to data and facts and keep up to date with the pertinent information.
Step 2 – Evaluate your Business
What is the current state of your business? How solid are your financials? How will the current situation affect you, and in turn, your staff? What has this done to your projected incoming work and revenue? What does the business landscape look like in the projected future? What is your current spending like? Do you have a considerable amount of debt? If you need to pause operations what would that mean? Are there some cost cutting measures you can take?
Pull and analyze financial reports, understand your company’s financial situation, how much you have in reserves, what your timeline looks like, and how much you need to make to support the business. Understanding the immediate and future impact of your cost-cutting decisions on your business is key to navigating a financial crisis.
Step 3 – Ask Yourself the Tough Questions
If you’ve completed a basic evaluation of your business and know where things stand, there are some specific questions to ask yourself that will help decide where you can begin cutting costs. Start by looking into what the current regulations are on your business. The local government may make some of the decisions for you, like if you can be open for business at all.
Next consider how much work is coming in? If work is still coming through the door and you can be open, then you can keep people employed. So you’re keeping people employed, but how do you decide who?
Ask what positions and skills are most necessary for your business. Evaluate your employees identifying who is essential and who is not during this time of crisis. Those employees who will still be working, what does that work look like? Is remote work an option? Are you limiting or adjusting hours? Are you creating shifts to comply with regulations?
Once you know how people will be working, look at the services or softwares you currently use. Will they continue to provide value or are there some you will no longer need? Take a serious look at the debt you are carrying; what can be done about that? Do you have options?
Finally, as a business owner, do you take a draw or salary? Can you reduce or suspend the amount you pay yourself to leave some money for the business to run? These are questions that will lead to the answers that should give you the insight you need to make the right decisions for your business.
Step 4 – Make the Difficult Decisions
Now that you’ve asked the questions, you need to make the best decisions for your business based on your answers. You understand if you are legally allowed to be open, evaluated the amount of work coming in and made the decision to remain open. If your business has transitioned to remote work, look into the possibility of discussing your lease payments with your landlord or building management and see what flexibility they may be able to offer.
You’ve identified the essential and non essential positions. You must now decide if you will begin layoffs, furlough employees, reduce hours for your hourly employees, or completely eliminate some positions. It’s also a good idea to take a look at your additional compensation and perks.
Employers are permitted to put a temporary stop on the use of vacation time, variable pay options, and bonuses; these can be revisited at a later date. You’ve noted what services are key and which ones you can suspend or cancel. Call your providers and understand your options and any fees involved. Evaluate what solution is best for you and move forward with your decision making process.
Reach out to software providers to understand what flexibility they provide with subscription and licensing terms, especially if the licensing is on a per user basis. If you’ve laid off licensees, request refunds or a revision in terms. You know your debt situation and how your relationships with the lenders are. It might be uncomfortable, but try to negotiate lower rates and defer payments when possible.
Finally, you as the business owner have to make a very difficult decision – Can you afford to pay yourself? And if that answer is no, can you meet your personal financial needs? None of these are decisions you should take lightly, and you may find it helpful to have another set of eyes on your plans; consult with a trusted advisor, labor attorney, or HR professional.
Step 5 – Communicate
You’ve made those difficult decisions, now it’s time to communicate what they are. This will mean uncomfortable conversations, asking for help, and lots of follow up.
Communicate with your staff and let them know what is happening, inform people of work hour reductions and layoffs individually. Get in touch with your vendors and see how they may be able to help, possibly accommodate a change in payment terms or a reduction in services. Reach out to your clients and let them know if any changes are affecting them and what support you are able to provide. Be sure you are communicating clearly and giving updates as possible. This is a tumultuous time for many people and being kept informed may prove helpful.
These steps will help you make well-informed cost cutting decisions. These decisions, although difficult, will help your business to weather the storm and provide you with the tools and information you need to navigate through crisis management and COVID-19. These are not the only steps you should be taking, but it’s a great start. If you have any questions or would like some help please reach out to Red Clover.
Written by Kylie Cimmino
Learn more about Kylie on LinkedIn.