9 ways to cut costs before or during a recession

by House of Control | Nov 8, 2022 3:00:00 AM

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In a recession, strategies must give way to short-term measures for survival. We have collected nine measures from American experts.

"Everyone has a plan until they get punched in the face." - Mike Tyson.

 

In a metaphorical sense, more and more business managers must deal with boxing legend Mike Tyson's famous words. Many are already wondering how the company will prepare for a recession, including how to renegotiate supplier contracts.

Forbes Magazine asked its regular contributors for their best advice to companies facing cutbacks. Here are nine pieces of advice for companies that must reduce (or are considering reducing) the level of activity in the face of an upcoming recession:

1. Be open with all the company's stakeholders

It is expensive to let a financial crisis also become a crisis of confidence. Transparency is a fundamental prerequisite for maintaining stakeholders' trust. Let employees know what you did and why you did it. Ask employees and others for ideas and recommendations before acting. This is how openness can motivate employees and others to help you.

2. Ask for insight and advice from objective third parties

It will be painful to cut staffing, locations, departments, product areas and so on. For historical reasons, the company's management is likely to be biased - because they themselves have proposed many of the initiatives that have previously been put into action. Therefore, the current management will struggle to analyze the situation and implement the necessary measures. Often, independent advisers can better assess the strategic position and offer concrete advice.

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3. Pause to consolidate

Perhaps you are not facing cutbacks. Perhaps you have simply grown too quickly and lost focus. Rather than risk future cutbacks, it is best to take a growth break to consolidate. In practice: Look around the market and see what works best. Get structure and foundations in place, and never compromise on quality and customer service. From there you can grow further.

4. Monitor liquidity

Liquidity is the pulse of the company. Therefore, pay close attention to the cash flow. This is particularly important in times of crisis. Follow up weekly to look for problems - and implement solutions. Keep an eye on accounts receivable, accounts payable, stock and employment like a hawk. Look for opportunities to "enroll" more income into the cash flow. And be sure that sales grows sufficiently before you acquire new costs.

5. When the company must pivot to cut costs

Sometimes you must pivot, quickly evaluate the current situation, and then take concrete steps to scale back. These may be situations where you must take short-term measures to ensure survival, but these are not necessarily investments in long-term growth - so to speak. Which contracts and obligations can be cancelled now - without it affecting the operation too negatively in the short term? Still, think of it more as a learning process in adapting your operation than a failure. But here, too, you can make the right moves in the long term, for example reducing the need for staffing by adopting smart technology.

6. Consider a "Season of No"

Your self-motivated and skilled colleagues usually want the very best for the company. Therefore, you usually agree to well-thought-out proposals for investments and costs that can create growth. But what about committing to status quo and saying no for a period? Cope without new deliveries. Be innovative within today's framework. Again, this is not a long-term strategy for growth, but sometimes short-term moves are for long-term survival.

7. Take a fresh look at the customer journey

A company that is initially successful often expands into new products and markets. Increased income and more investors, employees and customers are symptoms that you are doing a lot right. But what exactly is being done right? If all arrows are pointing upwards, it can be difficult to distinguish the important from the unimportant. When income suddenly stops, it is important to have a razor-sharp focus on what are the right activities. Here, the customer journey should be at the center of how you prioritize resources.

8. Back to basics

In theory, strategic focus is about choosing the right activities. In practice, it is more often about opting out of activities and defining what the company should not do. Growing in too many directions is a misuse of resources and unsustainable. In a time of recession, it becomes imperative to focus again on 1) what the company does best, 2) which customers you do it for and 3) why you do it. When the company's purpose is again clear to everyone, it's time to send money, talent and energy in the right direction.

9. Balance vision with execution

Good leaders can be both visionary and able to execute. Visionary abilities include being curious, creative and innovative. Execution skills are based on critical thinking and problem solving. Both are necessary to navigate a sea of good ideas. If you don't have both, look for someone who can help you with the skills you lack.



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