Somewhat unexpectedly someone asked me a question on last week’s blog about cutting costs as a method of raising money. I am honoured that at least one person read my blog.
Let me be clear – cutting costs never raises money. It allows you to go forward with less money and that is the key. The more money you raise the more your investors and your bankers will dig into your business and as they dig they amuse themselves by telling you how to run your business. You, a card carrying member of Enterprise Britain being told how to run your business? Who are they kidding?
So where to cut costs? Well you need to have good information about your company and you need to be honest with yourself. Both are likely to be difficult. You are probably using Sage as your accounting system, so your information is likely to be limited in quality – sorry Sage, but I am not part of your fan club. Honest with yourself – now there is a challenge, so let me give you an example.
That first company I took out of receivership and I wrote about last week – they were proud about how tight they were – when they parked at the airport they saved one parking charge each time by tailgating two cars through the barrier on exit. Probably saved about £4 a month. In the meantime they had an account with the pub across the street, the landlord of which came over to ask me to pay well over £2,000 for the last month before receivership.
So some things are easy. I closed the pub account (and left the landlord to settle with the receiver on the old charges) and had two benefits – no costs and sober staff.
Sticking with the saving of the parking charges, the people who told me these stories were driving BMWs and Mercedes whilst our customers were driving Sierras and Escorts (remember them?). The holding cost of the BMW was more than twice that of the Sierra. Easy money saved.
The challenges came with the staff. I had to be drastic and I reduced the staff from 180 people down to 110. I still have nightmares about it. Good people, trying to do a good job, but we had to survive. When we got to 110 we still were not breaking even, but there was no more room to cut, so I went a step further. I cut all salaries by 10% and mine by 17% – I was on the highest salary, but not that high. I did not go through consultation, I just faced the staff and told them what the situation was. I either cut or we closed the place down. They stuck with me.
A year later we were making profits and everyone was back on their salary. But I had changed a culture, an outcome I had not foreseen. Every penny was turned over twice before it was spent – a bit Scottish, but not quite Dutch yet. Everyone was focused on the bottom line.