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The E-Myth approach to cost cutting

Many of us are finding that we need to cut costs to get through the recession. A recent E-Myth blog posting looked at the dangers of taking a short-termist approach to this and compromising on your long term strategic goals.

It is a natural instinct to cut costs whenever income drops below outgoings, and it is easy for us to revert back into a “technician’s” way of thinking when put under pressure.

Here are a few points to bear in mind if you are faced with this sort of challenge:

  1. Think strategically and don’t lose sight of the overall objective (to make profit rather than to cut costs).
  2. Don’t forget to factor in the true cost of cost cutting. The best example is probably staff costs. When you lay people off, as well as obvious costs like redundancy, you may also face costs like:
  3. – recruitment, induction and training (when business picks up and you re-hire)- loss of motivation for the staff who are left- risk of unfair dismissal claim, with all the legal costs and management time and emotional energy that this incurs- loss of goodwill of customers who are loyal to those team members:- recruitment, induction and training (when business picks up and you re-hire)- loss of motivation for the staff who are left- risk of unfair dismissal claim, with all the legal costs and management time and emotional energy that this incurs- loss of goodwill of customers who are loyal to those team members

  4. As discussed in my earlier blog posting, the downturn creates opportunities if you can maintain a strategic perspective. For example, many outsourcing businesses are doing exceptionally well at present as their customers look to shed in-house costs and employees.
  5. Can you share overheads with other businesses, even competitors? eg move out of your offices and share with someone else.
  6. Renegotiate existing contracts, for example offer to commit yourself to a longer contract in return for lower short-term prices. (But be careful not to compromise on service levels by doing this.)
  7. Look for opportunities to pay by bartering rather than with hard cash. How many suppliers do you have who need services/good that you can supply?
  8. Many businesses cut their marketing spend when times are tough, you may be able to get a much higher return on your marketing investment now and generate cash much more quickly from the extra sales.
  9. Finally, find someone to brainstorm ideas with rather than relying on yourself to find solutions.

For more thoughts on this subject, here is the original E-Myth blog posting (part 1) .

Can you add to my 8 points? If so, please let me know.

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