Cost cutting, cost reduction, consolidation or cost management has become central planning topics in all competitive markets.
The area that get focused when thought of cost cutting in the organization are
The impact on core competence;
The decreased speed of response to market demands;
Increased problems of quality control;
Vulnerability to supplier default
How do companies plan their cost cutting? Let’s have a look
Have a look at their Cash management first:
They don't pay any bills until they're due. See who has a late charge, and who doesn't.
They Exercise dormant lines of credit. If there is an annual cost, such as 1%, many business owners consider dropping a line of credit. But remember the rule of banking
Closely monitor your three sources of cash:
- Appraisals in process, not yet completed
- Appraisals billed out, but not yet collected
- Paid billings: cash on hand
They remain aggressive with past-due accounts, particularly non-institutional companies, such as mortgage brokers.
Get rid of excess stored stuff, such as old office furniture. Don't pay storage costs for things you really don't need.
Don't offer lower prices to a client that isn't price sensitive. Not everyone gives assignments to the low bidder.
Don't overpay your income tax quarterlies. If you anticipate that your taxable income will drop this year, don't pay taxes based on last year's income. Work with your accountant to pay quarterlies based on a more accurate estimate. If you've already overpaid your quarterlies, ask your accountant about a quick refund, using Forms 4466 and 1138.
Contingency plan is important especially in times of economic recession. Contingency plan includes layoff, reducing the working hour, cutting or eliminating bonuses, restructuring the business, and reducing the expenses.
Utilizing your employees to the best of their abilities is one way to cut unnecessary costs. When employees are placed outside of their position of strength, the time-cost ratio of productivity lowers. For each hour that an employee is on the clock, a cost is being incurred. To minimize the cost the company incurs, people need to be in a productive role for as much time as possible.
Instead of laying off employees, the management can stop hiring new employees, and utilize the services of the present employees to the fullest. Effective personnel management is the key to cost cutting. Assign tasks to employees who can do their best in those particular tasks. Set targets and ask employees to meet them in the allotted time. Do not deal in consultants, since they have to be paid more as per their level of experience and expertise.
Frugality is often required. One needs to be wary of spending more than required. Make sure that you choose the least expensive option at all times. Make sure that when traveling, modesty is maintained.
Keep a tight reign over salaries and overheads. Review the monthly overhead expense in comparison with the budget. Promise bonuses rather than salary hikes. Hire part-time personnel during summers and interns during internship seasons.