Once your goals and monitoring mechanisms are in place, it's
time to find and surgically remove the most wasteful activities and
expenses. Olson likes to cite a maxim from business author Jim
Schell: "Avoid waterfalls in the lobby." The idea is that
you can safely eliminate any cost that adds little or nothing to
the value of your service or product.
Employees are the first place to look. "Not only are you
paying them salary and benefits," says Olson, "but you
have to provide them with equipment, space and supervision in the
form of managers." When you add all that up, a full-time
employee may cost $100,000 a year. "Getting rid of 10
managerial or professional employees can save you a million
dollars," Olson says.
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way to keep costs down is to make sure all your product lines are
strong sellers. Not sure how to do that? We can help you evaluate
whether you've got a loser in
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But don't just start slashing workers. Instead, ask yourself
and your managers whether you can justify the workers you have.
Says Olson, "Everybody on the payroll must be doing something
that must be done and that can't be done cheaper."
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If you have a job that must be done but isn't being done as
cheaply as possible, look first to outsourcing. Uecker, who handles
executive MBA and executive nondegree programs at the Jones
Graduate School, says the outsourcing of routine tasks, such as
making copies or supplying the office coffee machine, frees up his
staff for more important duties.
Even Musa, admittedly not an avid cost-cutter, says, "We
sometimes use consultants instead of high-priced [employees] to do
the same job." The difference in outsourced help, he says, is
flexibility. "It's not a recurring cost. It's
terminable."
Musa also exercises discretion in hiring outside experts.
Attorneys and other expensive professionals shouldn't be
overused, he says. "You can probably cross out one point on a
contract and sign it without running it by legal again, although
they want you to," he says.
Also, selling any idle equipment or outdated inventory on which
you may be paying taxes and expending maintenance can generate cash
while reducing outlays. "I'm constantly surprised at what
companies keep on their books," says Olson, who recalls one
company whose bankruptcy filing revealed it owned a condo in Hawaii
for the convenience of vacationing executives.
Next stop: your products and services. Selling products that
don't produce profits and services that don't entice
customers can be hugely expensive. "In every company I've
worked for, people tried to push products the market wasn't
responding to," Olson says. "It means you're just
spraying out costs."
Don't just focus on products and services, Uecker advises.
Look also for customers who aren't carrying their weight. Small
companies desperate to boost sales are especially vulnerable to
taking on customers who promise large revenue boosts but
who—for reasons like excessive service requirements, slow
payments or demands for discounts—produce low profits or even
losses, he says.
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