Expense Reduction To Improve Cashflow in the Age of Covid19

Updated: Dec 9, 2020

Dear Subscriber, My goal of the Growth By Design Newsletter is to give you the best information, strategies and practical tactics I know will help you build a more valuable business. This is even more critical now than ever, as the Covid19 Pandemic response is reshaping the way the economy and business works. Both tremendous risk and opportunity exist now and your primary role as an entrepreneur is to be aware of this, understand it and know which action to take and how. Today, I am focusing on helping improve your cashflow position by managing and decreasing unnecessary overhead and expenses in your company.  While many business owners and leaders watch expenses closely, they rarely systematically review expenses in order to ensure that every dollar is being put to work and has maximum leverage.   Here are the key steps to systematically reduce expenses in your company:

  1. Pick a recent period to review expenses.  At least the last two weeks or the last full month for which you had completed financial statements. It should be recent.

  2. Assemble a small working group of 3 or 4 managers, including your leading financial manager and operations manager (others may include a sales leader or other important role within your company).

  3. Create lists of all your expenses from your financial statements AND general ledger.  The finer the detail the better as it will show individual behaviours as well as general trends.

  4. Starting at the top, systematically review EVERY line item and expense. This is important, as you don't want to assume anything and need to understand how the money is being spent.

  5. Avoid the temptation to focus mostly on the big ticket items.  While I am a big fan of the Pareto Principle (80/20 rule), it is important from a leadership perspective to demonstrate to your team that you have the rigour to go through all the details. Be a mile wide and a mile deep!

  6. Review and discuss each expense and ask clarifying questions around how the expense creates value for the customer? Can be done differently? or is necessary at all?

  7. Engage your team in this process and determine if each expense item is a Go (continue), No Go (Eliminate it 100%) or Redirect (Reduce or consolidate).

  8. Upon completion, consider redoing your budget for the new reality and setting new targets.

  9. Communicate the process with everyone that needs to know and repeat it again in 3 to 6 months.

This systematic approach to expense reduction in a collaborative way will keep your team onboard while protecting the bottom line.  You should seriously consider cutting any expense that is not directly related to the generation of revenue at this time or the creation of value for your customers.   You can always increase expenses later when the situation improves, but now is the time to be disciplined in ensuring your cash and capital is allocated to its highest and best use!

By Eamonn Percy

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