Navigating Uncharted Waters - Fixed Costs focus

Following the previous blog on the lessons learnt in successful restructures, the best place to start is Fixed Costs as there is less impact on your employees and often, no negative impact on your customers. So, with fixed costs which you should seek to reduce as aggressively as possible and eliminate expense unless there is business criticality – I acknowledge accountants may classify some of the expense categories below as ‘variable’ – for clarity of thinking, below are the non-people related costs:

A.      Fixed costs sample menu of options:

1.      Rents: seek a rent ‘holiday’ – talk to landlord and seek rent reductions/rent holidays etc. Many UK retailers are reducing their rents as we write. In the new reality plan, you many also need less space.

2.      Business Rates – seek deferral

3.      Loan & lease interest - renegotiate/seek deferrals

4.      Call major suppliers to extend/renegotiate payment terms?

5.      Extend your ‘Corona war chest’ fund:

a.      Call Bank manager for ‘revolving credit’/extend loan?

b.      Credit card/overdraft headroom

6.      Keep early investors informed and seek an interest-free loan?

7.      Call your Utilities, cell phone providers and speak to the retention teams to say you plan to switch.

8.      Renegotiate Insurance for similar cover.

B.      As well as this, most Governments are supporting businesses with multi-billion-dollar packages of loans, grants, employee subsidies – do your research of what your business would be eligible for and apply for help, deferral of taxes etc.

As a rule of thumb, on your fixed costs, you should be able to take 10-30% out with minimum/zero impact on the business and defer payments to preserve cash for business survival. To reiterate, cash is all important at this time; seek to preserve it wherever you can!

Many businesses (especially services businesses which dominate the UK) will have 70-80% of their cost base in employee related cost which will be the focus of the next blog. Stay safe and in these times of crisis, be the best Leader you can.