Most CEOs at one time or another have to endure the difficult challenge of cutting costs to make ends meet.
And they often make the mistake of trying to do just enough to get by, leading to a second cutback and perhaps even a third, says Jeff Susbauer, co-founder and principal of Business Owners Consulting Group and associate professor of management and labor and director of the Small Business Institute at Cleveland State University.
“Companies have a tendency to not bite the whole bullet at once in spite of data that says you determine the whole picture of the crisis,” Susbauer says. “You deal with the crisis to solve it as a plan. If that means 15 percent needs to go as opposed to 10 percent, you do the 15 percent. You tell the people who are left, ‘Alright, business as usual now. We’ve cut out the part of the business we didn’t need. Go do your job.’”
Having a knee-jerk reaction to the situation is one of the most common mistakes that companies make when trying to get a handle on their expenditures.
“They literally don’t think about it systemically,” Susbauer says. “They focus on, ‘Oh my God. I just got a price increase from my major supplier. My cost of delivery just went up because the price of gasoline went up.’ If you’re running a business, you respond to the immediate crisis. Chances are pretty good that if prices or costs are going up in one area, they are probably going up in other areas.
You need to get the big overview to see what is really happening.”
To illustrate the danger of reacting too quickly to control costs, Susbauer uses the example of a company that cuts out overnight hotel stays for its sales force.
“That means the guy who has got the eastern territory has to drive 150 miles back home tonight after he finishes, and he has to go back there in the morning,” Susbauer says. “I cut down the hotel cost and the meal cost, but he’s going to charge me 48.5 cents a mile for 300 miles. That’s $150. I don’t think I gained much.”
As a business leader, you need to make the time to monitor history and trends in financial reports.
“There are things you should look at,” Susbauer says. “How is my company doing versus last year or versus the year before? I don’t care what the accounting period is, as long as it’s an apples-to-apples comparison.”
Stay in touch with your accounting department and make yourself approachable for regular reports from your accountants, whether those reports are good or bad.
“The tone is set at the top,” Susbauer says. “There is an outstandingly successful businessman I absolutely respect. He maintains you cannot create a culture of trust. You can create an environment where trust can emerge. That starts with being open. It starts with not decapitating the messenger. It really helps if you use words like, ‘I didn’t want to hear that, but thank you because I needed to.’”
And make sure that person has the experience to put the message in context.
“Most good accountants not only should be able to give history, but they should be able to help a business owner understand trends and what is going on in their business,” Susbauer says. “But most business owners don’t want to pay for it.
“It’s like many of the things that happen in business. If you don’t give it attention and don’t give it systemic attention, all you’re doing is putting Band-Aids on it. If the patient is hemorrhaging from multiple areas, Band-Aids don’t work.”
Watch the numbers
Staying in touch with your financials becomes a lot easier when you have people who expect a regular report on the numbers, says Mario F.X. Salwan.
“The best thing is probably to have a board of advisers and to meet with them on a quarterly basis,” says Salwan, president of Buckeye Painting and Decks Inc. “You would have to prepare your financials for them and tell them what you’ve been doing and let them basically oversee everything.”
Salwan says that having to present the numbers to someone else forces you to focus.
“In the process of preparing for those meetings, you’re also making sure to check those budgets and do the paperwork that normally gets put off because you’re going to have to present it to your advisers,” Salwan says. “They’ll come back and give you some feedback on how to control cost and raise revenue.”
Salwan says cost control should be a constant topic of discussion and that you should make sure that your employees know that their ideas on the matter are always welcome.
“Usually, your employees will have a good grasp as to things that might make the day-to-day job go smoother,” Salwan says. “Weekly meetings get me in front of everybody so they feel like they could pick up the phone and call me if they think of something.”
HOW TO REACH: Buckeye Painting and Decks Inc., www.buckeyepainting.com or (216) 292-1500