Cuts to Avoid when Cost-Cutting After the COVID-19 Pandemic

A recession is very likely upon us now. And this one may be somewhat different than other recessions in recent history, as this recession was induced more or less by government decree for the benefit of the public good and public health.

But however different this downturn or recession may be, it will still be likely marked by an overall decline in business activity, a rise in joblessness and the unemployment rate, and a drop in consumer spending that may last months or quarters.

Cost-Cutting Considerations

As you consider potential costs to cut, it’s important to make sure that you don’t cut anything essential that could hurt your company during a recovery phase.

For each business, there will be some cuts that are essential to avoid. And many of these may be the out-of-scope, unaddressable spend in a spend analysis and cost-cutting project.

Or it might be that the assets tied to these activities are also sacred cows that cannot be put on the asset recovery and disposition block no matter what.

But aside from critical company-specific assets, people, physical plant, and other spend that is deemed essential, there are also a number of other categories of expenses that you should not cut — no matter what. 

Audit, Accounting, and Finance Expenses

At the top of this list are audit expenses, accounting expenses, and software that makes the accounting, bookkeeping, audit, and financial operations of your company functional.

Your business could do essentially nothing. It may sell all its physical plant, trademarks, and patents. And it may fire all its people — including many of its finance people.

But as long as there is money in the bank and a way to keep track of financial records, and there are controls and processes in place to remain legally and financially compliant with state and federal laws, you probably won’t go to jail — even if your business fails.

If you lose the ability to track funds, you lack financial controls, your money vanishes, or you do something illegal with those funds, you could be in real trouble.

Even more important than having a profitable business is making sure that you don’t go to jail.

In fact, this is the very first level of the CEO hierarchy of needs in Figure 1. It’s even more important than the next two levels up — "Don't Get Fired" and "Don't Run Out of Cash."

Security Costs

Other areas that you probably shouldn’t cut are security costs. This is for much the same reason as keeping complete and accurate financial records. You need to secure your physical plant. and you should protect the assets you have.

Last Resorts

Beyond financial and security expenses, it’s also important to try and keep from cutting any core workers until the very end. After all, without them, it might be impossible to restart your business.

Similarly, you don’t want to cut anything — like paying interest on outstanding debts — that could hurt your business or personal credit scores. Having bad credit can greatly hinder your ability to operate a going concern.

This is to be avoided.

After all, if you lose your core workers and you have bad business credit, you may not really have a business anymore.

And at that point you should consider permanently closing your business.

Strategic Cost-Cutting

This is an excerpt from Jason Schenker's recent book Strategic Cost-Cutting, which was released on 18 April 2020. The book has been a No. 1 New Release on Amazon.

This book can be ordered at www.StrategicCostCutting.com

Jason Schenker is one of the world's leading futurists. He is the Chairman of The Futurist Institute and the President of Prestige Economics.

?Jason is also an instructor for LinkedIn Learning.

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