The economy is staggering, recession is looming, and your business is suffering. How do you escape the cash crunch? Cut some costs.
Perhaps you’ve already made some sacrifices and your employees aren’t too thrilled that you’re cutting the annual holiday bash. But some substantial cuts may be in store to protect your manufacturing business’s future. Here are some things you can do.
Cut Unnecessary Costs
Use the “ask, cut, compromise” method to evaluate all your business’s extra spending. For example, is it necessary to send all your managers to trade shows? Cut the number of people you send in half, or cut the number of shows. How often do your employees really use that free gym membership? Cut it. If you look outside your window and find someone in uniform mowing your company lawn or trimming the bushes outside your window, you may have found another cut. Unnecessary costs are the small things that can add up to big numbers. Ask yourself if professional lawn care is necessary. Look for compromise. Do you know a teenager who is looking for a summer job and can push a mower? Or perhaps there is an employee who can handle a second duty? These solutions could fill the same position for less than half the price. What about advertising? Cut anything that’s not giving your business profitable exposure. Making these cuts now will also help you be on guard against unnecessary spending in the future.
Build Relationships with Customers and Suppliers
At any time, regardless of economic stability, your manufacturing company’s health is reliant on its suppliers and customers. When their businesses are suffering, yours feels it too. If a customer’s sales go down so do yours. If a supplier has to raise prices, your wallet makes the adjustment. Form healthy relationships with suppliers and customers before you hit crisis mode. Be honest and straightforward. Tell them you’re facing hard times but value their business. Make it clear that you care about the health of your business as well as theirs. Building relationships with your suppliers and customers will create a mutual respect, hopefully one that will bail you out when times get tough.
Ask your suppliers for temporary price drops. Let them know you’re willing to work together. For example, are your large production requests crunching them financially? Help relieve the pressure by ordering fewer materials at a more frequent rate. Be prepared for conflict by having an arranged backup supplier. Keep in mind that switching suppliers means new material quality, new approval ratings, new delivery schedules, and new costs, all things that not only affect your business but your customers’ businesses as well.
If there is a necessary price increase, let customers know the percent of the increase based on the materials you supply them. In financial hardship, the increase could be anywhere from 5 percent to 15 percent. Be prepared for some uncooperative responses. Know which customers your company can’t afford to lose and which ones it can.
Value Good Workers
Your employees should undergo routine skills assessments. This is a great resource to have ready when emergency cuts need to be made. In a manufacturing company, it’s also helpful to keep a record of specifics such as employee performance write-ups and attendance. As with customers and suppliers, know which are the top contributors to your business and which are extra baggage.
While everyone else is cleaning house, businesses that plan for a staggering economy offer stability to employees. Do you have an employee who can work the punch press and is a skilled die setter? This is a valuable individual and other businesses will notice. Be aware of these prized workers. Sit with them one-on-one and talk about future opportunities and plans you can offer them. Assign them to be a project manager, give them more flexible hours, or allow them to work from home once a week. Making compromises with valuable employees will keep them from moving to the competition.
Consider Pay Cuts
What if your sales are down 20 percent but you’re not ready to cut 20 percent of your employees? The alternative is a 20 percent pay cut. If you decide pay cuts will be your recession fallback, make sure your cuts are fair, effective, and understood by all of your employees. If you have a small to medium-size business, it is possible to meet with each worker one-on-one. This personal meeting is an ideal way to let your workforce know you not only care about the business but have a genuine concern for them as well. As with your customer and supplier relationships, be honest. Explain the situation and give them stats of the business sales and an estimation of what their paycheck will look like once the cut is put into effect. Most importantly give them time. The typical period allotted to workers to make personal adjustments required by the cut is 30 days.
Be prepared for recession. Take advantage of the opportunity you have right now to cut unnecessary costs, to build relationships with customers and suppliers, and to know your employees.