When Cost Cutting becomes cash losing

Dear Friends

Thanks a lot for reaching out.

Today I want to share wit you a couple thought about cost cutting on any size company.

The first, what is the meaning of the cost cut?, very simple, to optimize and make your operation work on a more lean basis, reducing all expenses that does not contribute to new USD coming up as cash.

The cost cut can have impact in any area of your company, from Finance, R&D up to the most undesirable HR. in line with this, some companies have strong policies on not touching HR until it is extremely necessary (I personally feel same thing).

As everything in this world, cost cut has a root cause, and this is a bad performance or a bad planning on either your expense capabilities or your income generation. Like my parents always told me “don’t spend more than what you have, or if you do, do it safely”.

Now, the reason of this post is to cautiously talk about what happens when cost cut affect directly the operation without being aware of it.

Reducing cost at Marketing, letting your operation without any kind of budget to do crucial activities, could eventually reduce your traffic to your business below the acceptable and therefore make you to lose clients and eventual income potential.

Reducing cost at machinery renewal and maintenance, could rapidly increase the depreciation of your machinery, and probably increase the cost at any emergency fixing activity.

reducing cost at Human resource (the mostly used by some companies), hits directly in many tangible and non tangible factors, like overload of workload on employees, reduction of ideal productivity point and increase of demotivation, among others.

The best way to reduce cost is to be more optimal with the actual cost structure you have, meaning that you should obtain more for the same, increasing operating profits and efficiency.

The above means a frozen status on your fixed cost, and by producing or selling more, to reduce the unitary fixed cost, increasing your margins.

Always be cautious on cost reduction, and alays start by the non operative assets, like Rentals, Hedging (in case you work with Exchange rates), or reduction of Overtime for employees without fire them.

Hope you don’t fall on this never in your corporate life, but if you do, judge well and take the best of the hard times, take the opportunity.

Best