The economy is staggering, recession is looming, and your business is suffering. How do you escape the cash crunch? Cut some costs. Perhaps you’ve already made some sacrifices, and the employees from floor production weren’t too thrilled when you cut the annual Holiday Bash. But let’s be real here. Some substantial cuts must be made or your business’s value will fall.
Cut 1: Unnecessary Costs
If you look outside your window and find someone in uniform mowing your company lawn or trimming that ambitious bush outside your windowpane, you may have found your first cut. Unnecessary costs are the small things that can add up to big numbers. Ask yourself, “Is professional lawn care necessary?” Look for compromise. Do you know a teenager who is looking for a summer job and can push a mower? Or perhaps there is an employee who can handle a second duty? You could fill the same position for less than half the price. Use this “ask, cut, compromise” method to evaluate all your business’s extra spending. Is it necessary to send all your managers to trade shows? Cut the number of people you send in half or cut the number of shows. How often do your employees really use that free gym membership? Cut it. What about advertising? Cut anything that’s not giving your business profitable exposure. Making these cuts now will also help you be on guard against unnecessary spending in the future.
Cuts 2 & 3: Customers & Suppliers
At any time, regardless of economic stability, your manufacturing company’s health is reliant on its suppliers and customers. When their business is suffering yours feels it too. If a customer’s sales go down so do yours. If a supplier is charged more for a material you order your wallet makes the adjustment. This dependency is virtually unavoidable. So how do you make cuts with someone you cannot afford to loose?
The Decision Associates of PA advise reducing the chaos of recession by forming healthy relationships with suppliers & customers before you hit crisis mode. Make it clear that you care about the health of your business as well as theirs. Building relationships with your suppliers and customers will create a mutual respect; hopefully one that will bail you out when times get tough. If your supplier won’t go for temporary price drops ask why not? Are your large production requests crunching them financially? Help relieve the pressure by ordering fewer materials at a more frequent rate.
This mutual respect will influence their response to your request for cooperation. Be honest and straightforward. Tell them you’re facing a hard time but value their business. If there is a necessary price increase let customers know their production cost has increased by ‘the said percent’ based on the materials you supply them. In financial hardship your request could be anywhere from 5-15%. Be prepared for some uncooperative responses. Know which customers your company can’t afford to lose and which ones it can. For suppliers, be prepared for conflict by having an arranged back up supplier. Keep in mind switching suppliers means new material quality, new approval ratings, new delivery schedules, and new costs; all things that not only affect your business but your customers’ business as well. Save yourself some recession stressing by doing your research now so you’re prepared for later.
Cut 4: Employees
Your employees should undergo routine skills assessments. This is a great resource to have ready when emergency cuts need to be made. In a manufacturing company, it’s also helpful to keep a record of specifics such as, employee performance write-ups, attendance, and rejected parts. As with customers and suppliers, know which are the top contributors to your business and which are extra baggage.
While everyone else is cleaning house businesses that planned for a staggering economy are offering their competitors’ employees stability. Do you have an employee who can work the punch press and is a skilled die setter? This is a valuable iindividual and other businesses will notice. Be aware of these prized workers. Sit with them one on one and talk about future opportunities and plans you can offer them. Assign them to be a project manager, give them more flexible hours, or allow them to work from home once a week. Making compromises with valuable employees eliminates one unwelcome cut competitors could have made for you.
Cut 5: Pay Cuts
What if your sales down 20% but you’re not ready to cut 20% of your employees? The alternative is a 20% pay cut. If your business decides a pay cut will be your recession fall back, make sure your cuts are fair, effective, and understood by all of your employees. If you are a small to medium sized business it is possible to meet with each of them one-on-one. This personal meeting is an ideal way to let your workforce know you not only care about the business but have a genuine concern for them as well. As with your customer and supplier relationships, be honest. Explain the situation and give them stats of the business sales and an estimation of what their paycheck will look like once the cut is put into effect. Most importantl,y give them time. Thirty days is the typical period allotted to workers for making personal adjustments required by the cut.
Take advantage the opportunity you have right now to cut unnecessary costs, to build relationships with customers and suppliers, and to know your employees. Be prepared for recession.
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