Economists may have declared the recession officially over, but plenty of companies continue to watch cash flow and cut expenses where they can.
It’s all about being cautious, says Paul Tiffany, a senior lecturer at the University of California Berkeley’s Haas School of Business. Hiring remains sluggish in manufacturing, real estate and other industries, according to the U.S. Bureau of Labor Statistics. Sectors that are adding jobs are doing it slowly. While banks eased loan standards late in 2010, new loans are still relatively difficult to come by, according to the Federal Reserve’s Senior Loan Officer Survey. “People have learned from the recession,” Tiffany says.
For companies that are looking for painless or nearly painless ways to trim operating costs, Tiffany and other experts offer the following suggestions:
1) Revamp sales commissions. Salespeople might balk at first, but changing your commission structure can save a lot of money. In some cases, it also can encourage salespeople to work harder and sell more, says Lori Drucker, partner at Citrin Cooperman, a New York-based accounting firm. Raising a commission base, from $1 million to $1.2 million for example, will result in some savings, Drucker says. “Employees are going to work harder to make that base or risk losing their commissions, and some will lose their commissions,” she says.
2) Ask vendors for concessions. Companies that have long-standing relationships with their vendors could ask for additional discounts or lower shipping costs. But even companies without long histories with their vendors can save by asking for volume discounts or negotiating an anticipation discount, a reduced fee for paying sooner than the typical 30 or 60 days. “It’s going to the vendor and saying, ‘How can I work with you or restructure our pricing?’” Tiffany says. “Maybe that means taking on a longer-term contract or spreading purchasing over the course of a year, which gives the vendor an incentive to reduce the price of what they sell.”
3) Stop giving things away. Matthew Bud, managing partner of The Financial Executives Consulting Group, a Darien, Connecticut, executive networking group, previously worked at a publisher that spent millions on review copies of university textbooks for professors. Most samples were sold back to campus bookstores, reducing the publisher’s profit. Finally, the company decided sales representatives would pick up books after professors had evaluated them. “We recaptured the cost of the books, and the return visit was an opportunity for our salespeople to make another sales call,” Bud says. Every company has its own version of those textbooks, he says. “You just have to look at your expenses to see where it’s hiding.”
4) Use Internet-based software. Software-as-a-service provider NetSuite Inc. practices what it preaches. The San Mateo, California, company, which had revenue of $166.5 million in fiscal 2009, uses all cloud-based software for back-office workers located in Manila, Philippines. “[Workers] access everything they need through via the Internet,” says Ron Gill, NetSuite’s CFO. NetSuite maintains an IT staff in Manila. But using Internet-based software means the company can get new hires, an entire new branch office or an acquisition up and running quickly and for a lot less than it would cost with traditional infrastructure, Gill says.
5) Watch for salary creep. Companies commonly cut costs by eliminating or substantially reducing overtime, but as Tito Gautier learned, employees don’t have to work more than 40 hours a week to hurt the bottom line. Gautier, treasurer and vice president of finance at McLean Care, a $26 million provider of long-term care, assisted living and other senior services, cut overtime costs by looking for payroll anomalies. His analysis found that some employees who were supposed to work 25 hours a week were actually working 30 minutes to an hour more. The overtime went undetected because the Simsbury, Connecticut, company’s payroll system only generated overage reports for employees who worked more than 40 hours. Once he discovered the problem, Gautier put steps into place to eliminate the extra hours. Now, employees who go over their allotted hours have to punch out early during a subsequent shift or take off completely, and salaried employees fill in if emergencies arise.
“You just have to look at your expenses to see where (savings are) hiding.”
Matthew Bud, managing partner, The Financial Executives Consulting Group
6) Sell and rent back capital goods or property. Midsized companies typically have capital tied up in real estate, company cars, computer servers and other machinery. However, given today’s low interest rates, it might make more sense to sell off holdings and lease them back on a month-to-month basis, Tiffany says. “This will free up cash flow and lower the actual cost of doing business.”
7) Understand credit and charge card interchange rates and chargeback losses. Because ticket reseller TicketsNow.com handles ticket orders in excess of $10,000, the Rolling Meadows, Illinois, company has extremely stringent credit and charge card policies. The policies are meant to ward off fraud and friendly fraud, when consumers protest legitimate charges made by a friend or family member, either of which add up to big bucks. Policies cover red flags such as a shipping address that’s different from a billing address, or when a signature is required for a UPS or FedEx delivery, says John Stec, the company’s controller. The company also carefully tracks interchange rates, the fees levied by credit and charge card companies. Creating policies about how and when to accept credit and charge cards reduces losses and fees, he says .
8) Reward employees for saving money. Individuals can sometimes get better travel deals than corporate travel offices, so letting employees book their own airline tickets can help save money, Tiffany says. The key is incenting employees to find the best rates. “Tell them if they can keep their trip below a certain amount they get to keep their miles,” he says. Another option: offer to let an employee stay over a weekend or bring a family member on a trip if the change helps them book a cheaper flight or hotel room.
9) Reduce office space. Many companies have outbound sales teams that spend 75 percent of their time in the field. Instead of paying for offices that are rarely used, create drop-in spaces shared by employees who are only in the office part time. Doing could allow a company to cut back on office space and rent, Drucker says. Especially if your lease is up soon, look at ways to use less space, she says.
10) Reexamine marketing. Before the recession, Keats Manufacturing, a maker of small metal stampings, wire forms and assembles, sent sales and marketing staffers to four trade shows a year to generate sales leads. But the process was costly and time consuming and usually only resulted in 12 to 15 leads, one of which turned into a customer, says Matt Eggemeyer, the company’s COO. Last year, instead of spending on trade shows, the company hired ThomasNet , an online marketing services provider, to redesign and optimize its website to show up higher in search engine results. As a result, Keats cut its marketing spend in half and its website now gets 1,500 hits a month, many which are qualified leads. “Slashing just two of the trade shows paid for the website,” Eggemeyer says, “and we’ll continue to save since we’re only looking at minor costs for maintenance. My advice to anyone: They should not be afraid of digital.”