Welcome to Talk Business with Howard where CEOs, presidents and business owners get answers to their business problem. I'm Howard Lewinter the business management specialist business expert to CEOs, president and business owners. Today’s topic is cutting the cost of running your business. This is part 3 of a 7 part series entitled “How your business can survive and prosper in the recession?”
During challenging business times there's a tendency to look at business cost more than any other time. Part 2 of this series we talked about knowing your business and becoming a student of your business. The same is true with the cost of running your business. You need to study and understand your cost. Many business people don’t know what it actually cost to run their business. This is a big mistake. During this recession it’s even more important to take a careful look at the financial side of your business. Don’t become one of those statistics that goes out of business because you weren’t paying attention to your expenses.
Let me ask you are you looking to cut cost in your business due to the recession. If so how you're deciding what to cut. Let’s talk about what you need to consider when you're cutting cost. First never act out of desperation regarding your business finances in fact never act out of desperation with any of your business decisions. Yet in this recession unfortunately every business sector, business people are cutting cost out of desperation. Many unfortunate are making desperate moves in order for their companies to survive. They're slashing budget, cutting hours, canceling orders, lowering inventory, postponing marketing campaigns, not hiring and not training their employees. Such drastic cost cutting measures can often prove to be more costly than the cost themselves.
Certainly it makes sense to cut where there is waste and inefficiency but don’t cut cost just to cut cost. Analyze where to cut cost but also be willing to add cost where it will improve your business. If you do have to cut cost due to desperate financial circumstances think through your actions, make sure you confirm that the cuts are really necessary and not just for immediate relief to the bottom line. Sometimes to move a business ahead you have to spend money to make money even in a recession.
Second, every month your business should produce a profit and lost statement. This can be critical in identifying situations that must be corrected before they turn into big problem. For example, if the monthly labor cost have risen from 22% to 32% of total sales it’s important to learn why so you can get your labor cost back in line. Another example would be the purchases went up. Did the company inventory increase, was there theft or waste. The profit and lost statement gives you the ability to quickly evaluate where the company is financially. It’s an essential component to knowing and understanding your business.
Third, during uncertain economic times or any time a highly skilled workforce is a powerful competitive advantage. Yet another costly mistake desperate business people make is to cut back on training and motivating employees. Keep employees up to date with product knowledge, customer service skills and company news. Put new systems in place and improve your overall operations. Find ways to keep your employees motivated. Hold meetings with your employees on a regular basis. Ask them to help in making the company a better or cost efficient place to work. Reward those with great cost cutting ideas and ways to increase company profits.
The fourth and final point is many companies are downsizing and laying people off, if you're budget permits this maybe and excellent opportunity to hire new employees. Maintaining a strong workforce during a recession will only better prepare the company for the eventual upturn in business.
Today I highlighted four key points regarding cost cutting. One, don’t just cut cost to cut cost. Two, review your monthly profit and lost statements. Three, train and motivate your employees. Four, if budget permits hire excellent talent.
In the next video we’ll talk about another topic that CEOs, presidents and business owners should never cut out of their budget during a recession or any other time in its marketing. To sign up for the next video as well as all the videos in this 7 part series if you haven’t done so already, go to my blog talkbusinesswithhoward.com. In the upper right hand side of the page you'll find the sign up box for the video series. After you sign up check out my blog post and articles for more business perspective.
Since 1989 CEOs, president and business owners have trusted my business advice. If you like to discuss your business problems and business issues or I can assist you in any way, you're welcome to call or email me. You'll find the contact information on the contact page of my blog talkbusinesswithhoward.com. Until the next time, this is Howard Lewinter, business management specialist. I look forward to talking business with you soon.
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