This past year will be remembered, among other things, as the year that economies around the world came to a screeching halt in the wake of a global pandemic. Businesses slowed or shut down, and people are still wondering what the “new normal” will be. As organisations everywhere are shrouded in uncertainty, their focus is understandably on business cost reduction. Here are three smart solutions to assist any company in difficult times.
Below tried and true methods to achieve business cost reductions:
While cutting all costs may seem like the right move to save the future of your organisation, it is best to approach business cost reduction carefully for optimal results.
Start with getting a clear overview of all spending
Obtaining more visibility on expenditure and purchases is vital. If executives do not know where hard-earned income is going, it will be challenging to accurately track and make smart spending decisions going forward.
Then, review the budget
Begin with general and administrative costs to define what needs to stay, and what to cut without causing excessive damage. With a clear view of the essentials, executives can then revise the budget accordingly and follow up with suppliers and customers to manage expectations and maintain relationships.
Next, assess expenditures (with cash flow in mind)
Business activities and where a company is in the world can influence costs. For some, employees may be working from home, which will have significantly reduced travel and expense costs. Higher-ups may also look to defer new hires, if possible, and cancel or postpone significant projects or costly plans that were in the works. Combing through various service contracts and subscriptions and evaluating the cost and benefit of each is also a must.
If executives do not know where company money is going, it may as well be going down the drain. Lack of visibility on corporate spending can lead to overspending, which, in turn, can lead to unpleasant surprises with bank accounts and exposure to fraud.
Spend management begins with looking at the money a company is spending, and which has no direct effect on improving business prospects. While healthcare benefits, mobile phones, and internet subscriptions are all costs that could fall into this category, executives should not get too carried away with cutting them.
In challenging times, it is more important than ever for people to have access to healthcare and the ability to check in with loved ones via phone or video chat. Removing these advantages to improve cash flow could be an expensive short-term gain with long-term effects on team morale or productivity.
Curtailing "nice to have" products or services, such as optional training sessions, team building events, or non-essential spending, is advised. Consider reinstating the products or services sooner rather than later as a morale boost, once the company is back on its feet. While it may seem like frivolous and unnecessary spending, happy employees are, on average, 13% more productive, and that is a significant plus when planning an economic comeback.
Finding ways to digitise and automate processes wherever possible will result in a net gain, despite the upfront costs. One of the processes a company can start with is T&E management. Given the state of the world, looking into T&E may seem counterintuitive, but keep in mind that the world economy will bounce back. If a company relied heavily on business travel before the pandemic, the chances are that it will be a significant part of the business model going forward, albeit maybe less than before.
Revising a corporate T&E policy to ensure it is understandable and realistic will go a long way. In a 2017 survey, 50% of business travellers admitted to not following their company policy when booking business travel. For more than a third of them, the reason was convenience. With newfound visibility into spending, executives can now propose a policy that is clear, factual, and optimised with an expense management solution.
Expense management solutions not only ensure policy compliance; they also lead to business cost reductions by:
All these benefits are important, but fraud detection and prevention are especially so. According to the ACFE's 2020 Report to the Nations, over $3.5 billion are lost by businesses to fraud, each year, with a median loss per case of $125,000. But perhaps the most striking statistic in that report is that weak internal controls are responsible for close to half of the reported cases of fraud. It is likely that control, in these cases, was executed manually. An expense management system would foresee these potential issues and flag them before any problems arise.
While none of the steps above can guarantee a company will return to its pre-pandemic state, adopting them will help management and internal stakeholders gain better control of the business and ensure its best possible health.
Automated tools, such as an expense management system, drive employee satisfaction and improve efficiency in companies. Applying financial common sense such as reducing costs, increasing visibility, controlling spend and optimising processes will keep businesses afloat as long as needed until activities resume. While it will not be painless, executives and business owners alike have all the cards in hand to make this a valuable learning opportunity.