Ray Titus is CEO of United Franchise Group (UFG), a global leader for entrepreneurs with brands in over 1,800 locations in 80 countries.
Every business has to wrestle with their budget now and then. Profits will dip even when you think you’re doing all you can to keep them rising. It’s rarely easy, but it can be simple.
There are only two ways to raise profits, after all: Increase sales revenue or cut costs. It’s always easier to increase sales, but if you can’t, it may be time to trim down your spending.
If you’re not sure where to start, I recommend you look into a financial advisor to help you evaluate spending and suggest areas to cut. A certified public accountant (CPA) is a great place to start. Make it a short-term contract, but have them advise you on long-term strategies you can use in the future.
To Cut Or Not To Cut
Slicing the budget requires a scalpel, not a chainsaw. Look carefully at all expenses and be strategic when deciding what to let go.
Start with the low-hanging fruit, like travel and large executive perks. If you can’t eliminate travel, consider more budget-friendly arrangements than first-class airfare or top-tier hotels.
If you decide you must lay people off, avoid cutting valuable employees. You can’t afford to lose workers with special skills or knowledge, for instance, or whose client connections consistently feed your bottom line. You should also try to hold off on letting go of any sales-producing employees.
Instead, are there any workers who aren’t pulling their weight or whose efforts don’t bring results? Even if they aren’t in sales—maybe they’re in a creative department or they make the products you sell—their work should eventually lead to sales. If it’s poorly executed or they consistently miss deadlines, it may be time for them to go.
But don’t be too quick to go for short-term solutions. Advertising and training are essential investments in your company’s success and should be last resorts.
Cost-cutting is trickier for a franchise business. You can’t decrease costs that negatively impact the brand and the individual businesses. Instead, I recommend you focus on adding technology that can increase communications but decrease costs, like Zoom.
That’s how my company was able to thrive during the pandemic when sales slowed down and travel was greatly restricted. We invested in a local studio so our webinars and Zoom calls would look professional. Our franchise owners liked this even better than personal meetings, and it saved us a lot of money.
Some expenses can be adjusted rather than eliminated. Can you get a better deal for your cash-flow contracts, for instance? Renegotiating a 30-day payment to 60 days can free up some short-term cash—so can getting rid of deposits against future purchases.
Keeping The Frugality Going
The secret to effective cost-cutting is to adopt a long-term approach, even if you’re enacting short-term cuts. When things turn around, can your smaller staff continue giving you the desired results? Do you need to resume your old travel schedule, or has virtual conferencing been effective for most off-site meetings?
You should review all costs at least quarterly, especially if you are concerned about profit. Have a monthly profit and loss review and a yearly review of vendors and their competitive pricing.
But don’t take it all on yourself. The best approach is to get your whole team looking for ways to cut costs and save money. Don’t “nickel and dime” them on every pencil and pen, but get them in the habit of questioning whether an expense is necessary.
Make everyone responsible for the costs, and they’ll share in the profits.
This article was originally published by Forbes