In the coming 2023, business will not be easy. This is especially true for those who depend heavily on sales. As interest rates on loans rise, consumers will increasingly run out of free funds. Without free resources, there is no spending.
Why would anyone buy your product if they had to choose between food and some luxury? Of course, sales will fall, and you will be forced to reduce your costs and increase the efficiency of your company as much as possible.
1. DISCRETIONARY COSTS
The first way is the simplest – cutting discretionary costs. These are expenses that sustain life satisfaction, but which are not essential if unforeseen circumstances arise. For example, if your staff has traveled first class so far, they will travel economically in the future.
With this approach, business functions will not be lost, but short-term sustainable changes will occur.
2. CAPITAL INVESTMENTS
If we anticipate problems for the next period, naturally, the smartest thing to do would be to stop all large capital investments. We can observe stopping capital investment positively and negatively. The positive side is the preservation of capital, and the negative side is reduced technological breakthrough and possibly weaker competitiveness in the future.
3. PRODUCTIVITY
Productivity is a disease that plagues many enterprises. Labor productivity describes the amount of value that can be produced by one hour of work. In the long run, productivity can be increased through automation, education and modern tools. In the short term, productivity can be increased by layoffs, especially in cases where the organization has enough employees who do not produce enough value.
In the current economy, layoffs are a double-edged sword. Therefore, this should be decided resposibly and not fire anyone who really does not need to be fired.
4. EFFICIENCY
Although at first it seems that efficiency and productivity have the same meaning, this is not true. While productivity describes quantitative parameters, efficiency is actually described by qualitative parameters.
Efficiency specifically describes how much value is returned for a previously invested value. For example, by purchasing a new machine, it is possible to reduce electricity consumption and thus make processes more efficient.
5. OPTIMIZATION OF BUSINESS UNITS
The company can simply remove entire business units. What was once done within the company, it can prove prove to be simply unprofitable. In moments of crisis, everything that is not necessary, and everything that conflicts with the basic vision and mission of the company should be removed.
6. EXTERNAL ASSOCIATES
Entrusting certain aspects of production or services to external associates can increase the efficiency of the company. For example, if a company is fundamentally defined as a manufacturer, it is wise to look for trading partners who can help distribute products or services.
7. WASTE MANAGEMENT
While this is closely related to technological processes, companies need to take charge of reducing the total amount of produced waste.
It is necessary to revise the ways in which certain products are produced and under what conditions certain services are supplied. There is probably a way to use this waste in the form of another product. Your trash can be someone’s fortune.
8. PROCUREMENT AUDIT
Procurement should try to get better prices than those that was getting so far. This is often not simple, nor is it possible. In moments of global crises, due to the rise in the price of input materials, the prices of finished products also rise.
The positive thing is that all this reflects to all other participants in the chain. The rules remain the same, and good players are well known.
9. LOWERING THE PRICE THROUGH RESEARCH AND DEVELOPMENT
Development and research can enable products and/or services to cost less than they did in previous versions. Although it is a large investment at first, development brings long-term advantages over the competition. For example, it is necessary observe whether there is a possibility of producing the same product with cheaper materials.
10. QUALITY
Reducing the quality of a product, service or customer experience can dramatically reduce costs in the short term. In the long run, it can turn out to be a very bad strategy. It is necessary to find the actual level of quality that customers of products and services require.
In the process of lowering quality, the concept of brand plays a strong role. In practice, it is possible to lower the quality of the final product and service depending on how strong a particular brand is.
Any action in the direction of reducing quality must be carried out with due care. Otherwise, it is possible to lose both quality and trust in a particular brand.
11. OUTDATED TECHNOLOGIES
Companies often find themselves in a situation where they must pay licenses for outdated technology or work on machines that are simply no longer cost-effective. The reasons behind this are lack of time or lack of a technology resource management plan.
It often happens that there is also a lack of courage to move to new technology, due to the fear of the unknown. That’s why management has been putting off for years something that is inevitable in the future. They hope it becomes someone else’s problem.
12. REDUCING THE NUMBER OF SERVICE PROVIDERS
If certain partners are found to cost more than they contribute, they need to be singled out and their number should be reduced.
For example, if certain more expensive, monthly payed services offer too many options that are not used in operation, and there are some replacements that are cheaper and less extensive – it may be best to replace them.
Instead of contracting with multiple telecom operators for different services, it may be possible to sign one joint contract that is cheaper. Service providers are often willing to make concessions for such consolidations.
13. DISCONTINUATION OF A PRODUCT LINE
After conducting a thorough analysis of sales, it is necessary to determine which products really bring profit, and which are there as an addition and unnecessarily consume resources. In the growth phase, entrepreneurs are often inclined to insert a multitude of different products and services just because they were once able to produce them.
Periodically, it is necessary to review products and services. In this way, we perform a kind of hygiene of cash flow.
14. CLOSURE OF BRANCHES OR PLANTS
The closing of branches and points of sale is a common practice when optimizing costs. Instead of forcefully trying to keep a branch alive, sometimes the simplest thing to do is to just shut it down. The reason for this is that the cost of its maintenance is greater than the damage we will cause by shutting down.
15. REJECTING CUSTOMERS
A company can turn down unprofitable customers or reduce the level of services or products they offer to them. This is often a bad idea because of strategic risks and loss of reputation. A significantly better long-term strategy is to modify prices and practices to avoid such situations.
16. REDUCING THE NUMBER OF EMPLOYEES
When fundamentally reorganizing work, it is possible to determine that a certain part of employees is simply unnecessary. Layoffs are common in a recession. According to production principles, any component of a business that does not have a direct benefit to the end product or service is redundant.
Layoffs are often used as a last resort. Companies that have implemented staff cuts are much more likely to go bankrupt despite their current financial condition.
Layoffs can also be a signal that something is wrong with their long-term management strategy.
17. ADAPTATION OF THE WORKSPACE
It may be possible to perform the same services and produce the same products in a smaller and cheaper space. A free part of the space can be offered to other economic operators and thus generate revenue.
After manpower, the cost of space and furnishing is the second largest unrelated cost paid by the company. That is why it is necessary to take this into account when creating business strategies.
18. RELOCATION TO TAX-SAVING REGIONS
In some cases, the business may move to places where costs are lower. In countries with lower gross national income, the cost of wages is more likely to be more favorable. Certain locations offer surtax concessions or abolish it altogether.
In the last 30 years we have been able to see migration from western European countries to Asian countries and now back. All this transition is driven by cost advantages.
19. RENEGOTIATING TERMS
Contracts are not set in stone. Everything that has been agreed upon once before can be renegotiated on more favorable terms. It can also be broken.
When negotiating, the negotiator should not be impulsive. If the reasons are well explained, the other side will in most cases agree to certain concessions. A prerequisite to this is that these concessions must be rational and not put the other side at a disadvantage.