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What cuts have you made in company spending that helped your budget the greatest?

Scout Young's Profile

cost reduction ideasEffective cost reduction ideas needed.

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Please take a look at two blogs I posted on this site - Periodic Self-Assessment to Free-up Capital to Grow (May 22, 2013) and Expense Control Through Vendor Management (April 17, 2013). The approach offered in both pieces is to identify areas where capital is allocated inefficiently and right-size, a.k.a. CUT.

Goodluck.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Cutting spending is great. Containing or constraining expenses is even better.

But it doesn't solve the long term problem.

You can only cut an expense once, maybe twice.

You can hold the line on expense creep so much...

But you, as the CFO can assist greatly with top line revenue enhancement. This is the greatest contribution to the bottom line a CFO can provide, because it takes what is normally considered a cost center and now makes it a profit center.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I love the revenue enhancement! What specific ways do you take in this area?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

A simple for instance is assisting the sales staff by providing information not only at their finger tips and when they want it, but in the formats they like.

In many shops this doesn't happen.

Lyle Newkirk
Title: CFO
Company: Corrigo Incorporated
(CFO, Corrigo Incorporated) |

The most effective way to cut costs meaningfully is to take out entire functions or activities rather than to nibble around the edges. A mistake a lot of people make is to try to make across the board cuts or take out little things. That never gets you there and is usually very temporary. Figure out what you really need to keep the company going then start taking out departments or groups that do not support that key activity.

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

I so agree with you, Lyle! A few bits here and there is just a small band aid. But figuring out what you can do without for a long period of time let's you not only cut the cost down, but focus your other activities.

Specifically, the best places i have found in the past for such cutting has been marketing programs. i'm not saying to cut them all or anything like that, but where the spend has no clear ROI (which is very often), and it's an area where even the CMO is questioning its value, away it goes. of the 40% or so of company spending that's not on direct headcount, marketing programs have always been the next highest spend, and thus the best place to look for savings after we've looked at headcount itself.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Similar to comments made above is to begin with a complete spend analysis. The hierarchy of cost will allow you to set some priorities.

You also need to look at demand management. Do you really need a meeting involving travel when you can video conference.

Who are your top vendors? Can you re-negotiate terms?

Scott Smith
Title: Experienced CFO/Interim CFO
Company: Self-Employed
(Experienced CFO/Interim CFO, Self-Employed) |

I have generally worked in services/technology businesses where the largest component of total costs by far was personnel and benefits. The best way to avoid putting yourself in a position of evaluating cost cuts is to ruthlessly manage expenses 24/7/52/365, particularly headcount. A very common management mistake I see in these types of companies is a reflexive tendency to "throw bodies at problems" rather than carefully planning personnel resources and costs and managing to those plans accordingly. And the worst mistake of all is doing a big hiring wave in advance of revenue growth. That will always end poorly.
But to answer your original question, headcount reductions - although never pleasant to undertake - are the cost reductions that generate the most "help" for the budget because they are reductions in an ongoing cost that has multiple levels (base salary/tax burden/benefits/etc) that is too often viewed as fixed in nature by senior management when these costs are actually quite variable. It is just very difficult to pare them back for all the obvious reasons.

Ross Norton
Title: Director Financial Analysis
Company: Giant Magellan Telescope
(Director Financial Analysis, Giant Magellan Telescope) |

In one manufacturing business we adopted activity based costing to identify the true costs of manufacturing product. Once we had a better view of the cost allocation we were able to drop a product and optimize the processes where it was most useful to the bottom line.

Topic Expert
Charley Kyd
Title: Founder
Company: ExcelUser
(Founder, ExcelUser) |

I spent about 20 years as the CFO of small, cash-starved companies. Here are some thoughts...

...With expense-reduction, it's easy to get bogged down in details. But whenever I prepared an 80-20 analysis of my expenses, I always realized that most of my spending was in relatively few line items. So if I were to make significant cuts, they were going to have to come from that short list. Unfortunately, those items were the most painful to cut.

...Spending is the result of things you choose to do in your company. To reduce spending significantly, you'll probably need to stop doing certain things. (Trying to do the same things with fewer people usually is a dead end effort.)

...When you look at spending, ask, "What would Herb Kelleher do?" He built a large airline by being really cheap. That's not a bad pattern to follow these days.

...As Wayne suggested, I also worked with Marketing to find ways to enhance revenue in various ways...including price increases.

...In one company, my CEO concentrated on revenue, not margin. He was a real wheeler-dealer. So when I showed him sales ranked by profit contribution, he was shocked to learn that the products he largely ignored were much more profitable than his favorites, which he promoted heavily...mostly by slashing prices for large purchases.

...I ranked our repeat customers by their variable contribution to our bottom line, based on the products they purchased, and their payment patterns. I did NOT rank them by revenue. Once our sales people understood which customers were our most-profitable, and why, they knew where to better spend their time.

...I convinced our CEO to reduce call-reporting paperwork that he demanded from our sales people. I knew that call reports contributed virtually nothing to cash flow, but consumed a significant fraction of time from our sales people. So by slashing that requirement he effectively increased our sales force by 10% or more.

...Because managers can't fix what they can't see, I changed my reports so they made relevant performance much easier to see and understand. I gave them spreadsheet dashboards showing trends of measures they needed to understand. I gave them small tables with top and bottom rankings. I rounded numbers to the nearest thousand, because pennies were irrelevant. I kept asking what information would help them to do their job better, and then gave it to them.

Hope that helps.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Charley - I would add to your last paragraph empowering the users to run the reports on demand, this making the info no longer yours, but theirs

Topic Expert
Charley Kyd
Title: Founder
Company: ExcelUser
(Founder, ExcelUser) |

Wayne - Giving managers the ability to run Excel reports themselves opens up a lot of issues. Here are some reasons NOT to do what you suggest:

1. Managers shouldn't spend their time surfing the data.That's what the staff is for.

2. By demanding that the staff produce reports that managers need, managers train the staff to think like they do. And that's usually a good thing.

3. The staff often knows Excel a lot better than the managers. And they have more time to understand the data and its exceptions. So they often are better prepared than the managers to create analytical reports that can turn business data into useful insights.

4. Often, the data is embedded in the workbook. So giving managers a copy proliferates the data, which is a bad thing.

5. There's a difference between a report and an interactive data table. Well-written reports are quick and easy to read. But since they rely on the current data, there's no need to give managers the ability to print another copy from a workbook. Instead, give the report to them as a PDF file. On the other hand, interactive workbook data typically isn't very informative. And it can take a LOT of time to explore...time that managers shouldn't spend.

I know, I know, BI vendors promote the idea that managers should work interactively with the data. But surfing business data like that can consume a lot of managers' time while exposing them to only trivial views of the data. And the software to support such interaction can be VERY expensive.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Charley,

I never specifically said Excel, I said Reports.

One can program the accounting system to produce a series of reports with the login limited to just those reports. Hence, no changing of data, no access to data that isn't approved, and the reports are exactly the way the user wants them, not the accounting staff.

Wayne

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

As a manufacturer, the focus is material substitues, repairs and headcount.

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