Since the austerity budget of earlier this year cut government departments’ budgets by an average of 25%, the climate of cost cutting which began with the recession has left few businesses unscathed. I heard about a training programme called ‘Lunch and Learn’ which has been re-branded ‘Lunchbox and Learn’ – these days, you bring your own lunch.
It’s common sense for every business, of whatever size, to keep a tight rein on fixed costs. In a small business, you’re that much closer to the truth that every pound you make above what you need to cover your costs goes to profits. And keeping fixed costs down means you have the flexibility to smooth over any bumps in performance month by month.
But news spreads fast about what it’s okay to spend money on, and expensive habits like taxis quickly become part of the organisational culture. You only have to remember how MPs encouraged each other to make the most of their now-notorious expenses system. It’s human nature – if everyone is doing it, then I can’t be singled out to take the blame.
So what can you do to make yours a habitually low-spend culture?
• Make sure everyone sees the costs on a regular basis. Raising awareness of how much things cost should make people think twice before spending on things like stationery and couriers. And often people will come up with good ideas for keeping costs down.
• Get a member of staff (not on the finance team) to volunteer to go through the bills from suppliers in detail on a monthly basis. One firm who did this discovered an eagle-eyed enthusiast who personally queried people’s taxi bills. Her charming but firm approach saved the company hundreds of pounds a month.
• Examine every by asking the question: ‘How does this contribute to profits?’ Is the answer isn’t a compelling one, it might be the spend is a ‘lazy’ one that you could cut out. For example, if clients regularly visit your offices, you might decide flowers are important to convey your brand – or you might not. Once the decision is made, shop around for the best deal.
• Celebrate success on costs savings in the same genuine and heart-felt way that you applaud sales and business development achievements. What leaders notice and pay attention to is one of the top three factors that influence how people in organisations behave.
But you also need to be clear on what are, for you, the some ‘mission-critical’ things it would unwise to cut back on. Ask: what is essential to the achievement of our goals?
For example, for some of our clients, learning and development has been the first budget to be slashed. But one medium-sized organisation has gone against the trend and committed to putting all their senior leaders through a comprehensive leadership development programme over two years. Their analysis is that developing the capabilities their leaders will need for the future is crucial for the success of their strategy and their business.
HR is another area where many firms are cutting back. And that makes sense, when they’re cutting out bureaucracy and streamlining processes to make them more user-friendly. But the ‘human’ part of human relations – time, effort and investment in communicating with people and engaging them with the purpose of the businesses, making sure that they are energised and their energies are directed towards the right things – must not be the casualties of any cost reductions.
The key is to think short-term about getting the best deal for everyday essentials, and about whether the business really needs them to perform well – and long-term about the business itself, and what it needs to grow. Then your savings can be ploughed into your mission-critical business investments, where they will have real impact.
Stanton Marris is a consultancy that specialises in working with leaders at all levels to bridge the gap between strategy and execution, focusing on leadership development, culture and values and employee engagement. For more information visit www.stantonmarris.com