The current economic reality is such that businesses around the world are facing an existential crisis. Global economic uncertainty, fueled primarily by the ramifications of the coronavirus continues to pound SMEs across the board. Unprecedented job losses, declining personal disposable incomes, reduced supply, and growing uncertainty are par the course. Against a backdrop of what is expected to be a bitterly-fought US presidential election season, businesses are attempting to position themselves for success in an increasingly competitive environment where cost-cutting is the order of the day.
Businesses have adopted radical measures to stay afloat. With government aid in the form of the Cares Act aiding small businesses vis-à-vis the Paycheck Protection Program (PPP), businesses were provided with necessary resources to keep employees on the payroll, and rehire employees that had been laid off. The Small Business Administration (SBA) in conjunction with the Treasury Department rolled out the Paycheck Protection Program to provide funding for 8 weeks. As a business-saving option the Paycheck Protection Program also provides for funding towards utilities, rent, and interest on mortgages. Provided the business owner can justify use of the loan, it may not be necessary to repay the loan. Unfortunately, the PPP was not without difficulties. This bailout program – a veritable lifeline for businesses – was riddled with uncertainty, bureaucratic gobbledygook, and improper oversight.
Small businesses found it increasingly difficult to get the documentation submitted and approved, and by the time the creases were ironed out, big corporations had already eaten up huge chunks of the funds. Sometimes, the same businesses applied to multiple lenders and got approved for multiple Paycheck Protection Loans. For these types of businesses, alternative funding sources are absolutely necessary. Small and medium businesses invariably require a steady form of cash flow to survive. Without money to grease the proverbial wheels, the business goes belly up. When businesses are literally starved for funds, it may behoove them to consider alternatives to bank and government loans. A particularly important option available to businesses includes invoice financing through companies like Fundbox*.
*For more information on this viable solution, please read the Fundbox Review for an in-depth discussion of how invoice financing works, and how it can facilitate cash flow for SMEs during difficult times.
What Are Expenses That Businesses Can Trim Back On?
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In its simplest form, profitability measures the difference between income and expenses. If incomes are decreasing and expenses are constant, profitability declines. If incomes are declining and expenses are rising, accelerated losses result. Either way, a business is best served by reducing its expenses without adversely affecting the long term health of the business. For many SMEs, the decision to start looking at ways of cutting costs is a difficult one. Getting approved for a bank loan, invoice factoring loan, or other line of credit does little to reduce the burden of declining revenues moving forward. We are living through difficult times where extraordinary measures are required. A methodical approach to cutting expenses includes the following:
- Reduce financial expenditure by comparing the costs of insurance policies, consolidating bank accounts, and reducing reliance on unnecessary debts.
- Slash production costs across the board by optimizing use of factors of production. One such way of doing this is by selling offcuts, and excess capacity that is typically being dumped or recycled. Production costs can also be better managed by improving the efficiency of usage thereof. Layout, design, and functionality are sacrosanct. The space/cost continuum must be maximized.
- While cost-cutting is always at the back of a business owner’s mind, quality control remains the gold standard. Quality is not limited to the end product; it’s the entire customer journey from inception to cash out, and in certain cases to customer returns.
- Virtual technology and efficient time management are the best ways to cut costs and streamline business operations. Effective employee time management in the virtual arena is essential. With more remote workers on board, effective management thereof becomes the focus of the new-age workforce.
- Harnessing the skills, abilities, training, and experience of employees goes a long way towards reducing costs. By assigning tasks to those employees best suited to them, it is possible to maximize profitability and minimize costs.
- SMEs can look at alternative forms of marketing with low overhead costs, such as email marketing, referral programs, networking opportunities, in-house marketing, and increased reliance on social media.
Viewed in perspective, a business must embrace a multitude of cost-cutting initiatives to stay competitive in a depressed global economy. With millions of people out of work, and PDIs (personal disposable incomes) shrinking with every passing week, it pays to stay ahead of the curve by embracing the range of available resources, limiting internal and external cost factors, and delivering product and service excellence across-the-board.