The First Cost You Should Cut

Finding efficiencies is a good way to goose your profits and stay prepared in case of hard times. Here's are some basic ways to stay lean.

Written by Advisory Board

Welcome to Advisory Board, a weekly department in which a panel of experts—made up of entrepreneurs and professionals—answer questions you have about how to run your business better.

This week, a reader asks:

“My company is in a cyclical industry that is experiencing a significant downturn. I want to be ready to grow and expand when things get better, but need to cut costs. Where should I look first for savings?”

Here’s what the experts have to say:

“First look to yourself. As the owner of the company, you have to take the first hit. Only after cutting your own expenses should you direct your attention to others.”

John Wilson, founder and CEO, CEO Global Network, Toronto

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“Headcount is usually where you can get the maximum dollar savings, and the resulting improved cash flow can show up quickly. But remember that you might have termination costs which will act as a short-term drag on cash flow. Also re-examine your capital expenditure plans and see whether there are any projects which can be deferred.

“The most you can reduce costs by is 100%, whereas sales theoretically have no ceiling. Don’t become so fixated on costs that you ignore opportunities to boost revenue.”

—Michael Koff, owner, Michael Koff & Associates, CPAs, Markham, ON.

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“Key suppliers are a valuable source of market intelligence, and partners who value a long-term relationship will work with you through your business cycles. Collaborate with them to adjust your costs as you work through the downturn, with longer credit terms or reduction of costs on high-volume items, for example.”

Phoebe Fung, proprietor, Vin Room and VR Wine, Calgary

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“I have personally been through three downturns, and for me, it’s very important to not start with people. That’s what everyone else does. Finding, training and retaining talent is expensive so while lay-offs provide a quick hit, they also have a longer term and negative impact on the business.

“Your people and the consistency of your service are what matters. Look at costs that have no negative, long-term impact on the business: parties, marketing programs and lunches. People buy relationships, not glossy events and brochures.”

Shannon Bowen-Smed, president & CEO, BOWEN, Calgary

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