We are experiencing some extraordinary times. Our lives are far from routine and our organizations are going through some excruciating pain. As the title suggests though, managing costs is a necessity. Doing something different than you might have done before will be tough, but the hardest part will be to actually make the decisions. We suggest you have the courage to make those hard decisions – it will help keep you in business so that you are there for those that depend on your services. Be warned: it’s tough to tell your vendors that provide all of your program materials that programs have been reduced or vendors that perform printing for special events that events are cancelled or postponed; or worse yet, a client that depends on services that those services have been reduced or eliminated. Keep in mind, there is no magic elixir that will restore the health of an ailing organization, but there are strategies that organizations can use to survive until the turnaround takes place.
Cost cutting comes in a variety of forms, but normally you can classify them in four categories:
- Internal Cost Cutting
- External Cost Cutting
- Asset and Credit Management
- Personnel Resources
In this article, we will cover a few example ideas in each category. As we proceed, bear in mind that managing your costs is just one part of being in business. Realize that keeping and improving your revenue is just as important to any business operation.
Internal Cost Cutting
- Identify which programs/services you provide have the largest impact. Keep the most critical programs to your mission and the programs where funding is on-hand or you are certain to receive funding. In these trying times, we can’t do everything we used to do, we can’t run 100% of our programs at 100% efforts. If you have a program/service that does not have the impact that you are looking for, cut it out and save some funds and resources for those which are most impactful.
- It is important that your management team is “hands-on” during this time. They need to manage their staff and manage your costs. You should consider lowering the approval level needed to purchase any item. For example, in the past, perhaps anyone could buy needed items under $500. Now you only let a few people make purchases and director approval is required to authorize the purchase of any item over $250.
- Monitor departmental or program budgets closely and revise based on the current situation. If you don’t have departmental or program budgets, create them! It will be important to make sure accountability exists on as many levels as possible, and individuals at the lowest levels should share in it.
- Negotiate with vendors for special terms to accommodate your cash flow requirements. Don’t be afraid to ask! It is imperative you at least try this strategy.
- Develop regular financial “flash reports.” (“Flash Reports” include a summary of the key operational and financial outcomes of the organization, provided on a daily or weekly basis.) You need to develop an early warning system to help you make crucial decisions before it is too late.
External Cost Cutting
- Draw up a contingency financing plan. You need to be prepared before the “rainy day” actually happens. The plan would arrange for where to acquire one or more loans, provide for the potential of selling off or liquidating assets, and/or detail how to access new types of grants and funding. During this contingency plan development process you might even identify assets that are not being used or discover funding you did not know existed and take advantage of these opportunities long before the “rainy day” situation ever comes.
- Draw on your board of directors who can help you recognize opportunities you might not see. Remember the old saying “you can’t see the forest for the trees.” You may have some potential ideas that someone else is able to recognize sooner. Your Board should be comprised of those you know will honestly advise the organization on strengths and opportunities for one, but also be willing to point out potential weaknesses and threats.
- Outsource some of your work. For example, payroll or accounting. This may increase efficiency and allow you to cut some personnel costs or repurpose individual staff to focus on other, more critical, areas.
- Get with your insurance agent and look at trimming premium dollars from your policies. Do this by taking a close look at what is really necessary under current circumstances. A lot of organizations renew insurance year after year without ever looking at the details. Everything made sense when you took out the policies years ago, but maybe they don’t in today’s environment. Your needs change, and your coverage should reflect this.
Assets and Credit Management
- Set up an interest-bearing sweep account. Combine this with cost cutting strategies and stretching paying accounts payable for another thirty days. This could result in some additional income and improved cash flow.
- Refinance your debt or renegotiate your leases if possible.
- Take advantage of payment discounts (if available).
- Make it as easy as possible to collect revenue and, when you do, get it to the bank as fast as you can.
- Use independent contractors, seasoned volunteers with expertise, and part-timers to save some cost (both payroll and related benefits).
- Reshuffle staff duties to put the right people in the right place. In times like this, you need your best people doing the most impactful jobs.
- Form an internal cost-cutting committee to trim waste.
- Cross-train employees, evaluate staff productivity objectively and trim training budgets in the short term.
These are a few ideas that you can use to manage your costs. This should be a team effort, so recruit the best people you have–from all levels–to help in this process. For more guidance and help developing a strategy to manage your costs more efficiently, contact your CRI advisor.