When hard times come knocking at businesses, it is easy for managers to make knee-jerk reactions to protect their business. Today, the COVID-19 pandemic has caused many businesses across the country to scale down operations or fully shut down.
Depending on your business’s short-term and long-term goals, you may want to reorganize your finances to wade through this storm. Many companies have laid-off workers to remain in business. However, before you discuss layoffs, there are other cost-cutting measures you can pursue to keep your business afloat.
Here are 14 cost-cutting measures that can help your business cut costs without layoffs:
Carry out an in-depth review of your monthly expenses. Make an itemized list of your expenses and categorize them based on how important they are to your business operations.
As an online business, our company has escaped the worst of the crisis, but that doesn't mean we have been complacent. We frequently review our outgoings to ensure things never spiral out of control and this crisis has given us a great excuse to take stock of everything.
My number one tip would be to look at every single outgoing as a yearly cost, not monthly. There's no doubt that your business has accrued a number of memberships, subscriptions, and recurring payment services.
Co-Founder of Authority Hacker
Try to reduce your monthly rent, get a discount on utilities, cost-cutting by temporarily unsubscribing to the company’s subscription such as newspapers and magazines. Learn to recycle things that can be used so as to lessen the miscellaneous expenses or buy second-hand.
CMO @ Hill & Ponton: Veterans Disability Lawyers
Dig into your sales reports to determine how your products are performing. Any cash allocated for poorly-performing products, in terms of marketing or storage fees, can be paused to help the business through the tough times.
Consider temporarily stopping products that don’t perform well. Allocate the cash you will have saved to other critical areas of operation.
Reduce digital ad spend. Lots of businesses and websites have already done so, and while you might not think it to be a good idea, think about it - how many of your current or potential customers have any extra money right now? Unless your business or service is directly associated with the virus, you might be advertising to people who can't make purchases from your company even if they wanted to.
CEO, Electrician Mentor
More than 25 states offer Work Share programs. Also known as short-term compensation, the programs are a great option to consider instead of laying off employees. Moreover, the programs are supported by both federal and state legislation.
Through the programs, working hours are reduced instead of employees being laid off. This means that your employees will earn less. However, with reduced wages, employees can apply for unemployment compensation.
Switching service providers can also reduce business costs. When was the last time you negotiated your office cleaning contract? What about other services?
Evaluate all the services your business pays for and contact the service providers to negotiate the contracts. Alternatively, switch to vendors that are more cost-effective.
The first step should be to re-assess your business's recurring expenses and order each list item in order of priority. Look through past billing statements for line items for any recurring software systems, apps, third-party processing fees, etc. For the mission-critical expenses, keep in mind that many vendors may be willing to negotiate a lower rate during the pandemic.
Founder of Autoshopinvoice
If an item or business function is not critical to your daily operations, eliminate it or look for a strategic partner to get it done for you. Your accountant can help you to know how much you will need to cut off from the budget to remain in business for the upcoming months. For example, if your business needs transcription work, consider hiring a transcription services provider, instead of having a full-time employee to do this for you.
A huge chunk of expenditure is eaten up by the employee costs such as from salaries to office space to insurance, etc. Outsourcing the work that your staff cannot cover to the independent contractors is the key to cost-cutting. Along with negotiating the lower rates, our business gets benefited from varied experience in their fields of expertise.
Editor at Etia
Another way of cutting business costs during turbulent times is to reduce the number of hours that employees work. If you have non-exempt (hourly) employees, this is a great option to consider. On the other hand, if you have salaried employees, keep in mind that reducing their hours may make them lose their exempt status.
Talk to your team about how to strike a balance on working hours that will be both beneficial to employees as well as the business.
We have come up with a way to trim our staff's hours down a little where possible and to ask those who can manage financially if they would like to take time off without any financial gain. A few of our employers have cut their hours from full to part-time which is brilliant because the workload can be distributed over several days. Other staff members have given their shifts to staff who are more financially dependent on their income which is very kind and considerate.
Owner & CEO @ Marygrove Awning Co.
Encouraging employees to voluntarily take early retirement can help to cut your business overheads. This option will also have less impact on employee morale.
However, before opting for voluntary early retirement, consider the short-term costs to your business. Remember, you will need to provide financial incentives to encourage employees to consider retiring early.
Bigger expenses, such as rent and mortgages, should also be negotiated. Talk with your landlords to find out whether you can defer rent until business returns to normal. Your mortgage lender may also be open to deferred payments with no penalties attached. Do everything you can to ensure your business will be left with more cash at hand at present.
If your business has been forced to shut down or is taking hits due to a pandemic, let your landlords and mortgage providers know. Find out what options your business may be given to ease up the unexpected financial burden.
In this situation of uncertainty, no one is sure about when things will get normal. You may think of contacting your leasing office for negotiating a lower rent or consider moving office spaces. Shared workspaces are becoming a popular option for lean businesses and look into giving your employees the option to work from home.
The main thing I'll be doing to cut costs is closing down our physical office. If anything good came from this lockdown, it's that we found out we could work remotely with no issue. Most of our employees even prefer it, so there's no need to pay rent and utilities on a space we aren't going to use. I'd recommend other small business owners consider making at least some of their workforce remote, as any reduced consumption of utilities -- especially electricity -- will help cut costs.
Another strategy for avoiding employee layoffs is to minimize non-essential travel. A cost-effective alternative to traveling is videoconferencing, which can help in allowing for face-to-face communication at a minimal price.
While no one is traveling at the moment or having company dinners, this may change in a couple of months. Ahead of time, a business should re-set expectations about how much is permissible to spend. Staying at the 4-star hotel may no longer be an expense the company wants to pay. Likewise, paying for Ubers for employees that stay after 7 PM may also no longer be permissible.
CEO & Co-founder at Choosing Therapy
Reducing some of the company's perks is a good alternative to layoffs. Companies can offer their employees to select the perk they can live without. Weekly lunches and other fun activities can be cut until the crisis resides.
We found that the best approach is to cut hours to save on payroll and also cut some employee perks that we used to have in the office. We used to have a full pantry, give the team lunches and fun outings which of course we can’t do now that we’re all at home. My team has been extremely understanding and flexible with us knowing that we’re doing our best to keep everyone on payroll and have an income coming in.
CEO and Founder, CorpNet
There are several programs and schemes offered by the government and some organizations which can help you find the assistance you need to help keep your business running and your staff employed. One such option is PPP (Paycheck Protection Program) loan which is designed to provide a direct incentive for small businesses to keep their workers on the payroll, forgiving loans if all employees are kept on the payroll for eight weeks according to U.S. Small Business Administration (SBA). Beyond the PPP, the SBA offers other emergency loans during times of crisis.
Depending on where the business is located, one of the best options to help reduce costs without letting any employees go is to adopt a virtual office model. You can free up office space to rent or downsize by keeping essential staff onsite and sending everybody else home to work remotely.
With the bulk of businesses working remote right now, consider hosting a virtual office as a longer-term solution to help cut costs. If that isn’t viable, consider downsizing and only have essential staff return onsite. This can help drastically reduce business overhead and free up finances to continue employing your staff.
CEO/Founder, United Capital Source Inc.
A hiring freeze is the preferred option to avoid a layoff. However, you might still need to cover certain tasks which require skills and additional resources that can fill up by cross-training your existing employees to meet the job expectations.
For us, one way that we are able to avoid layoffs and help our business wade through tough financial times is through repurposing many of our staff to either work other positions or apply their focus to another area of the business.
We have re-trained our hospitality and service staff with production and logistical skills and shifted them to another entirely new area of the business. We have also trained other staff (of all positions) on digital marketing and other administrative tasks.
Not everyone can shift to a different type of position, especially on the fly. However, completely untapped talent may be discovered that can forever benefit your organization.
President & CEO, The Anthem Group
When external factors out of your control affect your business operations, you need to handle the problems head-on to ensure your business survives. However, layoffs aren’t always the right solution.
The above are some ways you can keep costs down, avoid mass layoffs, and help your business withstand tough financial times.