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4 Cost-cutting Moves Every Business Owner Should Avoid

Thursday, February 05, 2009
By Anne Kramer

With a recession looming, consumers are shopping and spending less frequently. As a result, many business owners are faced with finding ways to cut costs and reduce spending. It is important to keep in mind long-term vision and short-term goals, and not to cut spending that will prevent attaining these goals.

1. Major Cuts. Many business owners make the mistake of drastically cutting spending in only one area. It is more prudent to distribute budget cuts across the domains of marketing, overhead, and staff. This strategy ensures that no one area is so lacking that it negatively impacts the others, or the business as a whole.

  • Eliminating the budget for marketing means fewer leads, less business, and ultimately less income. Business owners should also refrain from taking on marketing responsibilities themselves; this distracts from their ability to execute vision, which is their primary purpose as leaders.
  • Making all the necessary cuts from overhead often means going without basic necessities. Since most businesses work to optimize overhead all the time, there is often little room for drastic savings here, without sacrificing key needs.
  • Terminating staff and reducing benefits initially saves the most money, but it also increases strain on remaining employees and stunts office morale. Remaining employees often have trouble shouldering all those extra responsibilities, but are reluctant to speak up, for fear of losing their own jobs.

2. Big Investors. Family and friends are a better source for money than venture capital. It is also better to go to many people for smaller sums of money, than getting larger sums from fewer people.
  • Family and friends are vested in the success of the individual, not just the business, so they are more likely to be patient and supportive.
  • People who invest large amounts tend to expect immediate results. Investors with smaller stakes are generally more willing to wait for a pay-off, and to be satisfied with modest returns.
 
3. Cutting Customers. Cutting corners on anything that affects customer services is a huge mistake. This will undercut the likelihood of first-time business and turn off even the most loyal customers.

  • It is critical to maintain the company infrastructure. Many business owners will hold off on buying new equipment. Regardless of the need, from ergonomic office supplies to new computers, these play an important part in the functionality of a business.
  • One cost-cutting strategy is to find ways to eliminate spending on IT. One way is to hire a managing service, which will maintain equipment and software, along with stabilizing the bottom line.
4. Cutting Employees. Many business owners sacrifice communication and employee morale boosters. This only ensures that employees will spend more time worrying—and even looking for a new job if they fear termination.

  • Weekly meetings with staff, to discuss progress and goals, reinforces employees’ worth and sense of security.
  • If the number of employees is reduced, management needs to discuss changes with remaining staff.
  • Explaining the decision-making process will reduce resentment and foster collective problem solving. If managers also take a pay cut, this needs to be communicated to employees.
  • A benefits statement, reflecting vacation time, paid time off, and insurance, is an excellent method of emphasizing what the company is still doing, rather than what has been taken away.
The best approach to cutting costs is to balance budget reductions across all domains. With careful planning and communication, business owners can weather difficult financial times.



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