• Michael Louderback

The True Cost of Reducing the Budget

Managing finances for your business can be an arduous task in the market today. Businesses are facing increasing costs with taxes, employment expenses, COVID-19, utilities and other miscellaneous costs. In an effort to shore up cash flow from bleeding out, many companies are turning to intense cost saving initiatives. With efforts focused on cutting out the unneeded spending, what is the true cost of budget saving tactics?

Each business environment is different, therefore there is never a simple solution that meets everyones needs. While there may not simple solutions for your cost saving, there are always money saving efforts that you should avoid such as these:

  • Reducing or Postponing Employee Raises - while this is an easy area to focus your cost cutting efforts on, it is undoubtably more costly to focus on this. Your employees are the backbone of your business. While some market forces have made this an inevitable cost saving area, this should be a last resort given other areas can be cut first.

  • Decreasing your IT Budget -  A large area of concern is focusing on reducing budgets on computers. This is great for reducing short term costs, but inevitably increases costs in the long run. The problem arrises in approximately 2 to 3 years, where a cheaper item is obsolete. Its best to focus on long term value, as this will help with employees workflow, maintenance costs, and lifespan. The IT department knows what will work best for a long term saving solution. For managed services, such as cloud computing, reduction of resources can lead to slower processing times that can increase inefficiencies in other areas.

  • Reducing Marketing Spend - often times marketing departments are considered to be aggressive spenders. Many businesses focus on cutting spending in marketing until they enter a better economy. This is by far the worst cost saving initiative. By cutting your corporate marketing spend you are leaving the market open. Focus on adjusting spending to target the highest ROI. Strategy in this area is key, not a reduction in spending.

When focusing heavily on cutting costs, its best to take a step back and examine what your goals are. Instead of creating a cost cutting plan, look into creating a plan focused on maximizing profits. It's better to have focused spending with long term ROI, than short term cost cutting that may cost more than you save in the long run.

©2020 by Michael Louderback.