NFIB

Cutting Costs in a Downturn, Part II
04/ 15/ 2002

Cutting costs is important at any time, but it is especially relevant during a period of economic uncertainty. Reducing costs can have a dramatically positive impact on profitability--and can contribute to greater competitiveness and stability. The trick is to make sure that the cuts do not directly contribute to reducing incoming revenue. Continuing last week's Workshop, contributor Jeffrey Moses offers tips on tightening the belt of your business.

Each of the following cost reductions can trim a company's overall budget, with little risk of also trimming the revenue stream:

1. Shop Around
To keep the cost down on new purchases and services, get at least three bids before making your decision. Provide each vendor with a list of everything you need and let them know you're looking for the best price. Your vendors are probably experiencing a little bit of downtime too, and will be more apt to bid aggressively. By taking advantage of the economic climate in this way, your costs could be reduced substantially within weeks.

2. Don't Agree to Long Contracts
Be wary of all long-term service contracts, leases and other arrangements that require you to spend a certain amount regularly. Service contracts for copiers, computers or telephones are an often unrecognized source of ongoing obligation. In some instances, long-term contracts can help hold down costs. But often it's cheaper and just as effective to simply call in a repair person to maintain or service equipment, rather than paying to have someone show up every month.

3. Review Ad Budget
It's always tricky to suggest cutting back marketing expenses, but a careful review of a company's advertising expenditures may reveal ways to trim costs. In particular, consider the number of days per month you're advertising on TV or in the local newspaper. If you reduce the number of ad days by 25 percent, you could save considerably during the course of a year, with only minimal risk that your overall revenue would suffer as a result. Tight times are good for experimenting. Focus on ads that produce results.

And a reminder from last week: keep employees informed of the cuts and remind them that they're not meant to inflict pain on them. Tell them that these are the times to establish new cost efficiencies for riding above any upcoming economic downturns. This could encourage them to rally around your cost-cutting activities.

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