Times are tough, COVID-19 is still rampant and maybe we considered making changes to our business model in the spring of 2020 but now - we really have to. With no way to know when life will go back to normal, it is time to embrace our current reality and for many, that means drastically decreasing our business expenses. As FP&A professionals, it is our job to suggest the best course of action to management, so let’s break down the numbers for an attainable and implementable solution.
6 Steps to Reduce your Company’s Expenditures
#1 Reduce Variable Costs
Regardless of your current business model, it is not business as usual and it is prudent to reduce the variable costs that you can. Speak with suppliers and inquire about discounts to normal purchases. If your business is one acquiring more customers, finding partners to negotiate a reasonable price that works for both parties to continue business relationships is still possible. Many companies are offering COVID-19 discounts and for those partners not willing to budge, it may be time to consider sourcing additional suppliers. Insourcing is another way to reduce variable costs by taking advantage of in-house assets. Other means of reduction include looking into process improvements and even negotiations to reduce those direct labor expenses.
#2 Dive into Discretionary Expenses
Now is the time to start considering those discretionary expenses that can easily be avoided. These include everything from employee perks such as lunch costs, travel, entertainment and unnecessary training. If not deemed completely necessary in our current climate, it is a discretionary expense. With offices closed and travel having ground to a halt, these changes can be made without a huge impact to the company’s day-to-day. That being said, reducing discretionary spending is an easy and effective way to make a dent in budgeted expenditures.
#3 Consider Non-Discretionary Figures
Non-discretionary funds are more difficult to curb, as the name suggests, they are mandatory. However, our new work from home culture does provide some leniency and options for non-discretionary reductions. Work from home or a remote employee culture allows for a repurposing of these so called non-fungible funds. Rent, the largest overhead cost, normally accounting for 2%-20% of a businesses monthly expenses can be greatly decreased through renegotiations, downsizing or shifting to the new and popular flexible office structure. It has actually been proven that moving to a remote culture can save a business $11,000 per year, per employee, for part time remote work.
Remote work allows for the reduction of another non-discretionary cost, salaries. Without requiring that employees be within a specific geographic location, the hiring pool becomes much larger and therefore salaries become more negotiable. Employees are likely to even take a lower salary if offered the opportunity to work from home. This also allows for a great reduction in insurance costs. Without having people physically in the office new insurance plans can be negotiated. Consider how current costs are classified and determine which figures can be reclassified and mended.
#4 Turn Long-term Commitments into Flexible Arrangements
Some fixed costs can quickly and efficiently be turned into a flexible arrangement. These include previously budgeted items such as those allotted for marketing expenses. Digital marketing, in our work-from-home culture goes much further than traditional marketing and even offers a better bang for your business’s buck. Other costs include fixed salaries that when moved to freelance positions or abroad positions can become more flexible. Rent can flex along with the workforce when moving to a shared workspace arrangement. Look into your long term commitments and decide how and if they can be turned into more flexible arrangements, giving the business more control over expenses and more leniency in cash flow operations.
#5 Renegotiate Remaining Fixed/Overhead Costs
Many remaining fixed costs can be rearranged due to the current circumstances surrounding businesses in these COVID-19 times. Regardless of contracts or commitments, companies would rather provide discounts or new payment terms versus losing customers, providing an upper hand in business negotiations. Whether it be landlords, suppliers, phone companies or internet providers, with the entire world dealing with the consequences of the coronavirus - plans are going into action.
Banks are refinancing loans and offering zero-interest plans, companies are offering discounts or new payment terms and the like. Even employees, throughout 2020, have been more accepting of pay decreases due to the work-from-home culture. This culture has allowed many to reduce their expenses overall including commute costs, babysitter expenses or even being able to move further from the city. Determine the remaining fixed costs and renegotiate them to guarantee the continuance of operations.
#6 Invest in Software
To convert your whole business to a more nimble model with less fixed costs requires many players and a deep analysis of a business’s finances. In order to get a clear view of the business and make these decisions, it is prudent to adopt platforms that assist in remote teamwork and offer a 360 degree view of your current financial position. Remote work isn't going anywhere, making it the time to accept these modern solutions.
Teamwork is required to revamp any business process and utilizing a platform that allows for tracking, planning and delivering tasks in one managed workspace is ideal. Monday is a popular team work platform with templates for any department. They offer the perfect collaboration tool to help any company work together to minimize business expenditures with results.
When considering overhauling a business’ finances, a modern FP&A solution with fast implementation is ideal. By utilizing a solution like DataRails, that works with your existing interface and does not require an IT team, implementation can be done quickly and efficiently. Utilizing an FP&A platform reduces the manual labor required for quick decision making and allows for models, forecasts and budgets to be reconfigured easily. This will help with the time wasted on report generation and leave more time for analysis of costs and commitments, help in identifying room for reduction and assist in conveying these ideas to management.
Businesses are Changing
With the COVID pandemic worsening across the globe, contingency plans are dwindling, if not expired, and it is time to consider a revamp of business processes. The most important is current expenditures and understanding where commitments lie as well as which ones can be amended. Today, employing a system that allows for quick, accurate decision making is not a want but a necessity. The lengthy processes FP&A professionals find themselves working with does not allow for the instant pivoting we currently require.
The future of many industries and even economies remain uncertain but with an agile FP&A team and the right collaboration software, your business can avoid being part of this debacle. Minimize your business expenditures and learn to adapt and overcome, all it takes is the right FP&A team - with the necessary tools.