In past recessions, the best companies not only survived tough economic times, but emerged stronger. Research by Bain & Company found that the top 10% of companies not only endured the Great Recession, but flourished in the following years as measured by key financial parameters and competitive outperformance.
What was their secret sauce and what can small businesses do today to prepare for a stronger tomorrow? The simple answer is to start on the defensive to manage through the downturn, and then move offensively to build a stronger company.
Start with non-essential spending
The first order of business is to defensively cut non-essential spending. This process of slashing expenses will be painful, but it will not only extend your company’s cash runway, but also make the company leaner and more profitable in good times.
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The goal with expenses is to think about how to operate more efficiently rather than making indiscriminate cuts. There are many places to look for non-essential spending, and a quick look at the corporate credit card can offer many ideas: office supplies, subscriptions, travel, and personal perks, to name a few.
For bigger ticket expenses, don’t be shy about reaching out to suppliers to renegotiate contracts or extend payment terms. You may be surprised at the response as players from both the public and private sectors are offering assistance to small businesses affected by the pandemic. Remember, every dollar of expense that gets cut flows directly to the bottom line.
However, be careful to not go overboard and completely slash essential expenses. For example, in many companies, marketing budgets are often the first to get cut. Instead, take the time to figure out which marketing strategies are working, and keep spending on the highest performing customer acquisition strategies.
When looking at personnel costs, consider hour and/or wage reductions, furloughs, and performance pay before layoffs. If you have to let people go, eliminate underperforming employees first and make sure your cuts stay within the requirement of the “payment protection plan” (PPP) loan program if you are seeking those funds.