Cost Cutting is the only option ?
Largely Cost cutting is the only option considered by entrepreneurs ?
‘When organizations indulge in cost-cutting, it is perceived by most to be impacting excellence, which is not always a sustainable way to boost performance.’ - An excerpt from the Gulf News, 2019.
Becoming an entrepreneur in the UAE can be a risky job, but it is not impossible. Of course, there are multiple factors to consider before even planning to venture out on something new, such as finding a reliable investor, accumulating funds, lots of market research and many more. There is no hard and fast rule for running a business but in a financial hub like UAE, setting up a successful and profitable business is at once a wise and tricky decision. There can be times when your business might face a blow, and the first thing that appears in mind for preventing a financial debt situation is cutting the cost of that business. But for retaining a bankable business in UAE, you need to know that cost-cutting cannot be the ultimate shield of your business failure, there is more to it.
What is Cost-Cutting?
Cost-cutting implies all sorts of measures orchestrated by a company to reduce the expenses and to increase profitability. Some basic steps of cost-cutting are:
- Laying off employees
- Reducing payment structures
- Restricting supply-chains or modifying resources
- Restricting services or closing down facilities
- Relocating to a less expensive area
When a company is facing upswing in its business cycle, its profit is likely to be generated regularly. Still, in case of a reduced profit margin or a loss, the significant stakeholders opt cost-cutting measures as much as possible.
The first and foremost thing about cost-cutting is a layoff. But what most companies tend to overlook is that layoff has its own set of consequences. These are in the form of lowered employee morale, rehiring cost, potential lawsuits regarding unlawful termination, severance pays, etc., which by default can worsen the company's financial situation even more.
Moreover, if the company can quickly survive the debt, it is inevitably going to face a shortage of labor and a decrease in net production- making way for an even worse monetary predicament. Maintaining the reputation and reliance of a company in UAE needs professional image and publicity that assures the targeted audience about the dependable service and products of the company; therefore, cutting off necessary publicity expenses and maintenance can cost the company more than imagined.
The financial strategist Scott Edinger says in his Forbes article, ‘As a leader responsible for the future value of the business, your strategy ought to provide an equal focus on how you’re going to increase the top line. Looking at cost-cutting versus growth strategies in purely financial terms, consider this: capital costs have hovered around historic lows for a while.’
What Could Be the Reasons for Lack of Profit in Business?
There are several reasons why a business bounces back in the very beginning or after a point, and if they go unchecked, cutting the cost would only be damaging to further growth.
- Wrong Market Strategy: The reason for the slowdown in your profit might occur from your wrong business strategy. If your product or service is not planned according to the market demands, it might not result in growth despite multiple cost-cutting.
- Wrong Target Audience: Every product or service is applicable to a specific group of people. Let your business be designed in a way that attracts the right crowd; otherwise, it will not have an effective output. For example, if you have an apparel brand for babies, your advertisements and publicity policies should be well-targeted towards young parents in specific.
- Unappealing Product: Make sure your product offering’s USP is captivating enough and suitable for the UAE audience. If your product does not have any unique qualities or any offbeat appeal to it, it might be hard to compete with already established brands.
- Lack of Measurements: Every business needs constant monitoring and introspection of cost management and future investment plan. To cope up with the surrounding financial situation, your regular planning is of utmost importance to maintain financial growth.
The rightly envisioned, innovative approach and optimization will always keep your business boosted. So, we suggest that you do not put your energy combating the negative impacts of cost-cutting, and rethink your ways of planning a successful business in UAE.
You may contact me to discuss the business model improvements and improving business performance. Write me at [email protected] or Call me @ 00971559911404.