Cost-cutting is a prudent strategy for businesses struggling to survive the coronavirus' (COVID-19) economic impact . According to Harvard Business School, the average small business has enough cash reserves to last just 27 days. Positive cash flow is critical to maintaining solvency and when sales are slow, cutting costs can help companies stay in the black.
However, curtailing expenses runs the risk of minimizing business exposure. Forward-thinking businesses strategically cut non-essential costs so they can maintain market presence and prepare for the post-pandemic rebound. To that end, here are five ways businesses can continue to cut costs and maintain presence.
5 ways to continue to cut costs and maintain presence
1. Bill deferment
Many banks, lenders and utility companies currently offer bill deferment for businesses impacted by the coronavirus crisis. Companies should reach out to them to see if they qualify for a forbearance. Examples include:
Companies can contact their banks, credit unions and other small business lenders to see if they can suspend payments. Many will defer mortgage loans for up to 12 months, and some might suspend small business, auto and other loan payments for a temporary period.
Before deferring bills, it’s important for businesses to understand key terms such as deferment period, repayment due date, interest rate and amended loan maturity date.
Businesses that lease space for offices, manufacturing, storage and other needs can ask their landlords about payment deferment. Though landlords might be reluctant to let tenants skip a month or two (they’re in business too, after all, and facing the same financial crunch), they might be willing to temporarily reduce rent if a repayment plan is established.
Credit card issuers might be willing to suspend payment or eliminate interest to help businesses stay on their feet. Companies should call their issuers to inquire about existing programs or negotiate their own terms. If worse comes to worse, they can remind credit card companies that negotiated terms are better than bankruptcy notices.
Some municipalities and utility companies have suspended utility shut offs and fees for non-payment. It stands to reason, then, that they would rather negotiate temporary deferments and repayment plans than deal with unpaid bills. Businesses can reach out to their municipal, gas, electric, refuse and other providers to see if they are willing to defer or reduce monthly bills.
Companies can negotiate reduced fees or better pricing with wholesalers, distributors, office supply companies, manufacturers and other suppliers. Though these businesses are likewise dealing with the crisis, it’s in their best interest to help other companies stay afloat – even if that means a temporary decrease in revenue.
2. Eliminate non-essential spending
Businesses should seek ways to operate as lean as possible during the coronavirus crisis. That means cutting all spending that’s not essential to operations – and even cutting non-essential operations. Ideas include:
Businesses might be able to return or renegotiate payments for unused leased equipment, including fleet vehicles. Some equipment might go unused because employees are stuck home; others might have been leased with good intentions but rarely used. Now is a good time for businesses to suspend repayment or return the equipment.
Though social distancing has already put a stop to most businesses travel, some essential companies still put people on the road. They would be wise to investigate whether the same work could be done remotely from home. If not, they should reserve travel only for the most critical functions. Minimizing travel not only keeps employees safe, it also reduces travel-related expenses.
It might be time to make a move for companies that lease more office space than they need. With fewer renters seeking commercial space, businesses are well-positioned to negotiate favorable terms on new leases. Tenants can also take offers to current landlords to see if they can renegotiate pricing; alternatively, they can see if landlords will temporarily cover expenses such as utilities.
Companies can audit their software expenses to identify ways to save money. If a program isn’t essential to current operations, they can pause or close their accounts. Many SaaS platforms charge by the “seat,” so businesses can also save money on the software they need by eliminating unneeded seats.
Cancel capital improvement projects
Planned capital improvement projects should be cancelled or delayed. Companies can also negotiate new terms with contractors, who would undoubtedly rather be paid for a job done in the future than lose the job altogether.
Reduce energy and refuse costs
It’s no secret energy efficiency saves businesses money, and now might be a good time for companies to switch to LED lighting or invest in a smart thermostat – if they weren’t already strapped for cash. Money-saving alternatives include turning off unnecessary lighting, reducing temperatures at the office (especially if employees are home) and recycling to reduce refuse costs.
Skip the business consultant
Some businesses might consider hiring a business consultant to help them navigate uncharted waters. That’s not a bad idea, but they should first explore free business consulting resources offered by the Small Business Administration and the Service Core for Retired Executives. The SBA offers free business counseling through its Small Business Development Centers, and SCORE offers free business mentorship.
3. Reduce payroll expenses
Payroll often represents a company’s largest expense, and it’s an unfortunate reality that some companies are forced to terminate employees to save their businesses. Others have been able to keep their employees through the crisis, sometimes with creative solutions. In all cases, employers should support their employees the best they can. Here are some ideas.
Part-time work or limited days
Employers can reduce employee hours or limit work to just three or four days a week to save on payroll. Though not perfect, it’s also not the worst option because employees still receive paychecks while the business saves money and avoids losing its top talent.
Remote workers have enabled businesses to maintain operations, but that’s not the only benefit of having employees work from home. It also saves businesses money, because employees cost money. When they’re not in the office, companies can save on energy, utility, cleaning and other costs.
Suspended benefit payments
Companies that contribute to pension plans and insurance policies or offer perks such as gym memberships and childcare can consider temporarily suspending payments and benefits until the pandemic ends. Overtime and bonuses can also be put on hold. Though employees won’t be thrilled about it, they might understand if the measures are taken to save their jobs.
Some companies are asking employees across the board to accept temporary wage reductions so they can afford to continue paying them. Others are only reducing pay for executives and managers. Though not ideal, pay reduction is still better than unemployment.
Lay off or terminate employees
It’s an unfortunate reality that many companies have had to lay off or terminate employees that do not perform essential duties or they cannot afford to pay during the crisis. Businesses that must do so can direct employees to unemployment and other financial resources to help them stay afloat.
4. Seek cheaper options
Businesses must spend money to make money, but now is a time to exercise frugality. It’s also a time to audit providers to identify money-saving opportunities. Ideas include:
Move sales online
Many businesses can’t have foot traffic; even if they can, many customers are staying home. Many types of digital marketing are more affordable than print marketing and media buys. That fact, coupled with a “captive” audience, means it makes sense for businesses to consider moving sales online. Doing so could reduce overhead and marketing costs plus provide much-needed revenue.
From Internet service providers and automated email platforms to marketing services and lawn maintenance crews, businesses would be wise to see if they can get the same services for better prices from competitors.
Companies can investigate whether free, open source alternatives exist for their favorite software. For example, casual Photoshop users can get by with GIMP or Pixlr. Microsoft Office users can make the leap to Google Docs or Open Office. QuickBooks users might consider giving Wave a try. Many companies are also offering extended free trials that can help businesses save money without losing access to premium platforms.
From office suppliers to retail wholesalers, businesses can investigate whether competing companies will give them a price break. If they wish to maintain relationships with their current providers, they can negotiate terms that meet or beat the competition.
Equipment and supplies
Companies can buy gently used, refurbished or recycled equipment and supplies instead of springing for brand new essentials. They can also actively seek discounts; for example, many office supplies can be found at dollar stores.
5. Invest in affordable marketing
Businesses can cut back on marketing expenses while they weather the storm, but that doesn’t mean they should reduce their marketing. Rather, it means they need to seek new, affordable (and even free) ways to maintain their presence during the crisis. Here are some ideas.
Prioritize what works best
Things have changed since the quarantine began, so businesses should review which marketing strategies are currently working and prioritize those efforts. Poor-performing campaigns should be cut to maximize efficiency. Focusing on what is working can help companies maintain positive cash flow during the crisis.
Promote with PR
Business leaders can get free publicity for their companies by offering to serve as sources for journalists and other media members, who are seeking insider insight on how the pandemic affects markets and industries. They can also contribute columns to relevant publications and create free resources to help the public navigate troubling times. That kind of exposure not only helps businesses maintain presence, it also lends authority and credibility to brands.
Double down on cheap marketing
Social media marketing and email marketing are both ultra-cheap, yet highly effective, marketing strategies. Businesses can invest heavily in marketing via these resources at a time when everyone is at home checking their email and following social posts. The key to success is to create useful, value-added content audiences will appreciate, like and share.
Partner with other businesses
Companies can partner up to reduce marketing expenses without limiting exposure. One example: local small businesses could band together to send a deals postcard or coupon flyer to every resident in their target area. Each business gets a promotional spot at a fraction of the cost of an independent mailing.
Be part of the conversation
Business leaders can join social groups, forums and other online communities and provide useful insight and helpful tips. Rather than actively market, they should work to establish themselves as valuable resources others can count on. They can also share their challenges with communities and work together to identify solutions. This free strategy can lend a sense of solidarity that ultimately leads to new business.
Volunteer and donate
Companies can volunteer and donate money, goods or services to assist with the coronavirus relief effort. Though volunteerism should not be solely for marketing purposes, helping others during their time of need certainly helps businesses maintain visibility.
Host online workshops
Video conferencing has surged since the coronavirus sent many workers home, but companies can also use it to host online workshops that deliver valuable or entertaining content to their customers. Customers are bored and seeking new hobbies and skills. Others are looking for career advice and self-improvement advice. Online workshops present an excellent opportunity for companies to deliver value and stay in front of their audiences.
Begin planning for recovery
It doesn’t cost anything to plan, so businesses that have their costs under control can begin planning their post-pandemic marketing strategies. Whether companies expect the market to rebound or falter, preparation positions them for success when the quarantines lift.
How much should businesses cut?
Eliminating expenses is a smart way to keep businesses afloat during the coronavirus crisis, but how much should they cut? Conventional wisdom might dictate as much as possible, especially since saving money will continue to benefit companies long after the crisis ends. However, businesses should be careful to avoid cutting too much and risk losing market share.
Cash flow projections can help businesses determine how much money they need to save and how much is available to spend. Companies can forecast revenues for one, three, six, twelve months and beyond and compare them to anticipated expenses. It’s a good idea to make conservative projections and plan for various scenarios so businesses can adjust to market trends.
Before cutting costs, companies should create cash flow projections to identify how much they need to save to survive the coronavirus crisis. Doing so will help them make intelligent choices that both reduce expenses and enable them to maintain presence so they’re prepared for success when the pandemic ends.
The information provided in this blog does not, and is not intended to, constitute legal or financial advice.
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