Cost Reduction - Part 2

Consider the Big Picture


Let's examine more closely why looking at the big picture is so important. For starters, the big picture gives you a wider view of your market and your business.

Clearly, good strategies are critical to making good business decisions. Poorly conceived strategies can haunt you. In bad times, strategies such as "slash and burn" are employed by the well intended business owner trying to save their. But, be careful.

The slash and burn approach is short term. It is reactive in nature and characterized by the wholesale cutting of people and programs across the board, without much consideration of the consequences. The approach is reactive because it comes from no strategy at all, other than cutting costs. Hence, the tactic often achieves a positive short-term effect on earnings, but commonly leads to disastrous long-term results. Why? Because short-term cutbacks are, for the most part, unsustainable.

Cost Reduction Part 1

In this tumultuous economy, reducing operating expenses has emerged as the number one objective for business owners everywhere. So what are operating expenses? Operating expenses (also known as operational costs, fixed expenses, and indirect costs) comprise the expenditures that a business incurs as a result of performing its normal business operations. These expenses include rent, phone, utilities, fixtures, equipment, inventory, marketing budgets, insurance, payroll, professional services, etc.


This article is not meant to be a step by step plan to reduce your operating costs, but to stimulate thought about how your Company can reduce costs, increase profits while not losing its strategic focus.

So let's look at operating expenses strategically and some of the reasons you may wish to reduce them.

1. In this tough economy many are cutting back which may reduce demand for your product

2. Your losing money and need to get back on track to profitability

3. Your business is profitable but not profitable enough to meet your strategic goals

Circumstances for cutting operating costs vary, but cutting some of them, or all of them, can be risky. To do this correctly and maintain your strategic goals ask yourself the following questions:

• If I/we don’t spend this money can the Company still compete effectively?

• If I/we don’t spend this money will the quality of our product be diminished?

• If I/we don’t spend this money will our clients' experience with the company be reduced?

• If I/we don’t spend this money will the goodwill you have worked so hard to build be reduced?

You need to consider your company and the market in which you compete while making these decisions.