Sign up for SmartBrief on Small Business today, free.
The coronavirus pandemic has caused many businesses to face tough budget decisions. While the extreme circumstances warrant drastic financial cuts, leaders need to be sure they’ve stretched their budget as far as it can go before calling it quits. Times like these, as difficult as they are, are perfect for plugging cash drains you may not have noticed before.
More often than not, many cuts can be made from the most overlooked areas of your business during the budgeting process. Here are three costs you should look at cutting now to keep your business strong:
1. Supply chain costs
Typically, a business can buy supplies at any time and in any quantity it needs. However, when a company is faced with serious budgetary issues, it may be worth surrendering a portion of its purchasing autonomy to cut costs on day-to-day expenses.
This can be quickly and easily done by joining a group purchasing organization. This joins a company’s purchasing power with others who have similar important needs. This, in turn, creates a collective purchasing unit that’s able to demand more competitive bulk pricing. Joining a GPO can be an excellent way to curb prices with little to no effect on an organization’s overall operations.
2. Office-space expenses
It’s becoming more clear how much office spaces cost as rent and utilities are still needing to be paid, even when people aren’t in the office. The coronavirus pandemic has forced many companies to adopt a temporary remote work model, and companies looking to weather the turbulent, unpredictable future may want to consider adopting a remote workplace model for the long term.
Becoming a fully distributed workforce can offer a plethora of different benefits for your bottom line, including the fact that it can dramatically trim the budget. For instance, Global Workforce Analytics research indicates that even a half-time telecommuter can save a company $11,000 per year through a combination of business and personal factors. These include increased productivity, less turnover and absenteeism, and — critically — fewer real estate expenses.
When a workforce is able to properly function remotely, it removes the need for numerous office expenses, including paying for the office space itself right down to smaller-yet-significant purchases. These — including conference room tables, office snacks, and coffee machines — can add up quickly.
3. Big bonus checks
Helping a business survive should always take precedence over bonuses and perks. This is especially true for C-suite executives who are in charge of major personnel decisions. When an executive opts to let employees go during a crisis while garnering a huge bonus, this can quickly lead to both bad press and unhappy customers.
This was seen when word leaked that Disney’s top executives would still be receiving bonuses (likely in the neighborhood of tens of millions of dollars). This occurred despite the fact that the company had just decided to furlough 50% of its workforce (amounting to roughly 100,000 workers) to try to save money during the crisis. The prioritization of bonuses over workers’ salaries drew the ire of many critics, including Abigail Disney, the granddaughter of co-founder Roy Disney.
Bonuses might be a tradition for your business, but doing away with them now can ensure your solvency well into the future. As companies turn toward severe options, such as cutting salaries or even slashing their staff numbers, make sure all compensation expenses are necessary.
Leaders who can get their companies through this crisis do indeed deserve bonuses — maybe just a little bit further down the line.
As a business owner, reducing your budget is never easy and doing so often means making painful decisions along the way. As your business copes with the fallout from COVID-19, make sure you take a hard look at all of your options — your profit margin will thank you later.
Rashan Dixon is a senior business systems analyst at Microsoft, entrepreneur and a writer for various business publications.
If you enjoyed this article, sign up for SmartBrief’s free e-mails on leadership and management, among SmartBrief’s more than 200 industry-focused newsletters.