Daily Leadership Thought #175 – You Can Cut Expenses Too Much

If you cut expenses too much in the short term, you may hinder long-term survival.

A significant concern I have for businesses as we continue our slow recovery from this recession is that we may have developed some bad habits, such as becoming too accustomed to reducing critical expenses as a default reaction to economic challenges. When you are in a survival mode, the goal is to keep the doors open and resize your organization to match its current and forecasted volume. We tend to be very conservative with volume forecasts due to the perceived minimal margin for error. However, if you prune a tree excessively, it may die. It also requires proper fertilization and amenable conditions conducive to growth. The same result(s) invariably happens to companies.

There is only so much extra work we can expect out of our top employees before they burn out. Offering little or no benefits eases short-term economic pressures; however, it also makes people feel vulnerable and worried about their long-term security. Business development necessitates investments and cannot be undertaken on a low budget for an extended period without negatively impacting your sales pipeline and top-line results. You can maintain old equipment and other fixed assets for a reasonable period, but ultimately, the downtime and problems are not worth it.

The goal of any business owner should be to grow both their top and bottom lines, increase operational effectiveness and efficiency, attract and retain talented employees, foster a positive work environment, and achieve high levels of customer satisfaction and service. All these outcomes typically require making strategic investments in one form or another. They start out as expenses. Of course, we need to prioritize our investments, plan our efforts accordingly, and not get too overly optimistic about the short-term potential; however, negative momentum will always lead to further negative momentum unless something positive is done to change the situation.

There is a famous saying that people can be “penny-wise but pound-foolish.” Businesses often make the same mistakes. Take stock of your current situation:

• Where have you cut too much?
• Where are you vulnerable from a capacity standpoint?
• Are you doing everything possible to keep your customers satisfied?
• Are you doing enough to generate sales?
• Do your top employees work in an environment they feel is conducive to success?
• What is the next big opportunity, and how can you prepare to seize it?

It costs money to make money, and you can’t expect to achieve business success while continuing to operate under a survival mentality.

Related articles

• Employees see wages cut, hours increased (simplybusiness.co.uk)
• A Leadership Dilemma (johnrchildress.com)