If you need to cut right now it’s about cash, not cost. Don’t focus on restricting travel or go looking for headcount reductions. Rather, get aggressively on the phones with customers to collect quicker. Tell all your suppliers that from now on your terms have been lengthened by 30 days. That’ll give you the immediate breathing room you need to do your stress test, rethink your business model and roll out a truly new strategy for the medium-term.
Plan and project
Plan for the immediate outlook (e.g. 10 weeks) and for the full year, updated monthly. The trickiest part here is to get good forecasts from your sales team, probably your one key driver for these projections. It takes a while to properly calibrate these projections to reality.
Make sure that in each new forecast round the team sees their previous full-year forecasts and the latest actuals compared to their previous forecasts. Next, ask them to explain the differences for each customer or product line. Sales management and the finance team need to really be ‘on’ the sales team in each round in order to challenge their biases, so that they slowly improve their predictions. And even then, just remember that sales teams tend to be notoriously optimistic, so some stress tests on sales and margin are essential. Oh, and clarify to them that projections are not their new targets – I forgot to make that clear once and thought I had found the world’s only pessimistic sales team.
It’s relatively painless, and you’ll find that simply asking suppliers for a better deal will get you somewhere. We’ve all had to negotiate in our jobs. The single most effective tactic is just that – ask. Start with the suppliers whose business models have a high degree of fixed costs and whose service/product is a commodity, those are the easiest (e.g. telco, logistics). But remember that in these times, everything is open for renegotiation, including your office lease. Given the choice between lower rent or a bankrupt tenant, your landlord will be pragmatic.
Probably your biggest line item, so a good place to look. Starting with the obvious (though apparently not so obvious if you’re in the financial industry): all bonus arrangements should be conditional on satisfactory results for the company as a whole, and the fine print should remind people that a bonus is discretionary. If your bonus scheme deviates from this, amend it right now. Further on salaries, we’re now at a stage where cutting salaries is no longer taboo. It’s easy to find market data to verify your intuition that certain salaries are out of whack – take the data, set salary guidelines for each position, and reset those that are either much too low or much too high. Today, many companies simply cut salaries by e.g. 10% across the board. Combine these two points and you can consider cutting base pay and adding a bonus potential.
This is your next obvious one. Some thoughts: look at where a department has been functioning fine for a while with some vacancies. Also, think of which collaborative processes (e.g. sales, customer service, purchasing) are better done online than over the phone or in person. Thinking of the image industry, another typical issue you may recognise is a long tail of small customers. If this applies to you, try to quantify the resources spent on servicing a single customer, insofar as these resources are unrelated to size. You may well find that you’re better off either losing them, or better, servicing them through some low-cost automated window instead of in person. You can complement this bottom-up analysis by a top-down one: imagine your business being run with only your 20% largest customers. Take a blank sheet of paper and design your operations around them. Now draft the matching P&L and see if it beats your own.