How Fast Can You Cut Overhead?

Get a list of all your overhead expenses for the last quarter and the last year, the more data the better.  List the items from largest expense to smallest. Look at the list and ask yourself what would happen if something happened - the economy goes bad, you lose your biggest customers, you lose your source of raw materials, or a competitor comes up with a unique product that destroys your sales – how fast can you cut overhead while you regroup or reposition your company.

Usually payroll and the related expenses are the largest. What is the cost of cutting the payroll not only the costs associated with terminating employees but also the lost experience and training?

There are a number of things to consider.

·         Can you hire employees with the same skills after you deal with the downturn? What would be to cost and perhaps benefit of training a new employee.

·         If you keep the employees that are working below capacity will they willing and able to ramp it up in the difficult times?  I kept a very expensive employee who I considered a key part of my operation through a very slow time between projects. Once the new project started I had to shed this employee because this person had become too comfortable working part time for full time pay.  I also discovered that some I had shed in the slow times were more than willing to return when I asked.

·         Can you outsource some of the required operations such as bookkeeping to your accountant so you are only paying for work when it is being performed? If you do outsource will you get the same results as you do with the in-house personal?

Some other items that often lead the list of overhead expenses are insurance, rent, and utilities.  What can you do if anything to reduce these costs in slow times?