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Don’t Do Knee Jerk Cost Cutting


In times of crisis, we all need to tighten our belts and sharpen our pencils right? It’s considered wise to be thrifty. It’s been embedded in our thinking about success for thousands of years. The great Roman philosopher and statesman, Cicero, said that “Frugality includes all the other virtues.” But will cutting costs get your business through a global pandemic? Maybe your business model needs to change. Without spending time on strategy, how do you even know which costs to cut?


Your business is more than just numbers on an accounting ledger. The financial books only tell a part of the story. Most of the business’ value is intangible. If you don’t think through the bigger picture, you may be cutting far more value than the savings you are generating. Karl Albrecht who founded Aldi supermarkets put it this way : “You can seldom improve quality by cutting costs, but you can often cut costs by improving quality.” Now is the time to focus on the quality of the intangibles of your business. There are four broad categories to focus on.




Human Capital.These are the people who work for you. Do you not only have the right people but have them in the right roles? No matter how good your team, there are always ways to get better. One example could include developing an experienced management team so that the business does not solely rely on you to function. Training, professional HR, and sales are other common opportunity areas for improvement. Putting resources into these areas can pay off many multiples of the investment.


Structural Capital.Your processes. Processes need to be documented. Company computer and data processing systems need to be up-to-date and fully integrated. What processes, technology, infrastructure, and services make your business special? Many businesses store these processes in the minds of the owner and key employees. This needs to be documented. Putting some investment in shoring up these areas could be money well spent.




Customer Capital.Post Coronavirus crisis, this intangible category may require some thought. How have customer relationships changed since before the crisis? Have your customer segments changed? Is there a new customer segment that the business is uniquely positioned to serve? Allocating dollars to strengthening relationships and speaking to new customers may be a priority.


Social Capital. This is how the company is perceived by customers, employees, and the public. It usually develops over many years from having strong capital in the other three areas. An impact can still be made in the short term. Look at your messaging. Is it clear, consistent, and compelling? The marketing landscape has changed and there are now more effective ways to speak with your target market than ever before.


None of this is to say that you shouldn’t look at cutting costs. The new paradigm may require it. The facts and circumstances of business have changed enough that this is all going to require some thought. It’s understandable why many of us want to jump right into cost-cutting before giving it thought. Author Wallace Wattles put it this way : “There is no labour from which most people shrink as they do from that of sustained and consecutive thought. It is the hardest work in the world.” Get some help. Put together a team. But use this unique moment to improve the quality of your business.


https://medium.com/increasing-life/go-beyond-cost-cutting-61aa88474aed


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©2020 by Brent Rupnow, CEPA, CFP, CLU, ChFC