The impacts of the global pandemic are sending shockwaves through nearly every economy, country, industry, and business. With some exceptions (looking at you, Zoom) many businesses are experiencing a decline in demand, shortage in materials, and a lack of funding options. And with corporate debt levels already at all-time highs (greater than $10 trillion) and growing, the ability to service those debts will become increasingly difficult in a market downturn.
Leaders who have already been through economic downturns such as the 2008 financial recession, the dot-com bubble in the early 2000s, or earlier market contractions, may be able to bring some of that experience to the table. Many business owners and operators, however, will be navigating this uncertain economy for the first time.
If your business is to survive a recession, your entire team must take an active role in balance-sheet optimization and reconsider salaries, lavish expense accounts, sprawling office spaces, and company-wide perks, and more.
In this article, we delve into the expenses many businesses waste money on and how to reconsider each in the wake of COVID-19.
Management Expenses That Don’t Manage Much
When business is booming and budgets are riding high those expensive business trips, client dinners, and more can feel like essential costs of doing business. In times of FUD (fear, uncertainty, and doubt), the truth of these costs is revealed as discretionary and avoidable.
In these unprecedented times, where GDP of the US in Q1 2020 was -4.8%, businesses are certainly feeling the squeeze in their bottom line which is why you must consider how each line item in the liabilities column of your balance sheet contributes to your assets column. If there is no obvious correlation, the expense likely isn’t managing to drive the results your business needs and can be reduced substantially, if not eliminated entirely.
Headquarters, Offices, and Campuses
Likely one of the biggest expenses on your balance sheet is your office space. For most of human history, businesses have needed physical real-estate to operate. Today, however, the ability of many businesses to operate effectively using digital technologies is starting to disrupt the long-held belief that offices are mandatory for business.
Even recently, highly successful technology companies like Twitter, Shopify, and Facebook have rolled out policies for their employees to work remotely on a part- or full-time basis. Policies like these will likely continue to permeate many businesses and industries. Even the business models that rely on physical real-estate, like retail and services, could pivot to become more real-estate efficient.
Just consider how Amazon Fresh is disrupting the traditional grocery store’s business model. Instead of having a retail location where a limited number of shoppers can come, risk of theft is heightened, and aisle layout is limited by functional space, Amazon stores food in a warehouse with efficient supply chain and distribution practices for delivery, greatly reducing nearly all the above issues.
If you used the time in quarantine to test your team’s ability to work remotely successfully, then perhaps now is the time to reconsider your office expenses or how you could innovate your business model to become more cost-effective.
For example, if you are a firm believer that face-to-face collaboration is essential to the success of your business, then you can consider implementing a desk-sharing model where your employees take turns using the smaller office space. This will ensure your team won’t lose the opportunity to collaborate face-to-face while still cutting costs.
Get Resourceful With Human Resources
A team of top talent that works well together is one of the most valuable assets to any business. During a crisis, however, the salaries and benefits of your employees can weigh heavily on your balance sheet.
Some businesses are quick to make cuts to their team across the board—including their top performers, which is like throwing the figurative baby out with the bath-water.
Instead, there are more resourceful ways to keep your team employed and satisfied, while still being fiscally responsible. For example, you could temporarily renegotiate the salaries of every employee to make a small sacrifice from many to save the few who would otherwise be laid off.
You could also renegotiate your team’s salaries to be more heavily dependent on actual results. For example, you could cut base salaries in exchange for a higher commission structure. This could actually benefit your business in more ways than one. If your team is incentivized to deliver on their key performance indicators, for example, the top performers will shine while your underperformers may actually decide to find another job, finally realizing they are not a good fit for the position.
Take a Balanced Approach To Business
The balance sheet is one of the most important measures of success for your business. As an entrepreneur or operator, you must deeply understand how each line item impacts the bottom line and where cuts can be made in the event of a catastrophe like COVID-19 was for many businesses.
If you want even more tips for expenses your business could cut from the balance sheet, check out the infographic below from Embroker featuring 16 expenses businesses waste money on most.