It’s been over a year since the start of the pandemic and even though we’re slowly getting back to normal, one thing seems at the forefront of everyone’s mind: cost containment strategies. Since the start of the COVID-19 outbreak, accounting executives have had to balance a myriad of budget-related issues – from unexpected expenses, a decrease in revenue and temporarily furloughing employees.
Over the past year, we’ve spoken to 50-plus CFOs and financial leaders and they have a lot to say about reducing expenses. It’s a hot topic that’s spanned a few episodes on Personiv’s award-winning podcast, CFO Weekly.
Here’s what CFOs and other leaders have to say about cutting costs in the accounting department.
Biggest Mistakes In Cost Cutting
If there’s one thing accounting and finance leaders can agree on, it’s that controlling spending is never fun. In fact, one of the biggest mistakes that decision makers lean toward is blanket cost cutting according to Ken Wentworth, Speaker, Author, and Fractional CFO at Mr. Biz Solutions, who addressed this problem in Episode 47: Cutting Costs In The Accounting Department.
“I think that’s the biggest mistake companies makes… they say ok we need to cut everything by 20 percent, and I think that’s the wrong approach to make because that can really cause a negative, accumulative snowball effect that can make your business spiral.” – Ken Wentworth
He continues with pointing out that the easiest way to cut costs is to grade each expense by labeling them as either having direct, indirect, or no impact on sales and existing customers. So how can accounting and finance leaders cut costs without harming the business?
According to Ken Wentworth, cash flow planning, budgeting and pricing. Cash flow planning and budgeting allow leaders to focus on long-term finances, while being prepared for the future.
“Keep a close eye on your margins… I call it MYM – mind your margins.” – Ken Wentworth
Likewise, make sure you’re pricing your products and services correctly. The quickest way to deplete your revenue is by breaking even – a sure-fire way to destroy a business if left unchecked. In fact, Ken Wentworth calls this the silent business killer.
Additionally, utilizing certain tools and resources can be beneficial to organizations that want to keep track of their costs and margins. Such tools include Excel and QuickBooks, or even cloud-based ERPs … which are great resources for small- to medium-sized businesses.
Put Profit First in Your Cost Containment Strategies
What happens when companies continue to spend and spend without thinking of the ramifications? Their business fails and they lose profits. It’s a never-ending cycle that spans across every industry and leaves leaders shaking their heads.
Andrew Royer, a CPA, a certified general accountant, and a bookkeeper, weighs in on this topic in Episode 7: Putting Profit First – Why It’s The Bookkeeper’s Responsibility.
“Most business owners are doing what they do best, which is running a business.” – Andrew Royer
The only way to overcome this problem is by putting profits first. Royer explains that even if your company’s revenue drops, the expenses don’t. It’s the same principle as losing your job. You may be unemployed, but you still have bills to pay.
“People will continue to spend and spend and spend at the rates that they’ve always been spending at. And that’s what causes them to topple.” – Andrew Royer
Why Budgeting Matters
So, we’ve talked about how to cut costs and why you should put profits first, but what about budgeting? Does budgeting even matter? On Episode 49: Mastering the Budget Cycle, Clint Jackson, CFO of BombBomb dives into the topic of managing your budget cycle.
One thing accounting and finance leaders get wrong is they push budgeting to the backburner. In fact, 65 percent of managers don’t have a budget until after the budget period starts.
“A good budget does not wait until the budget season to do all the key activities.” – Clint Jackson
A budget helps organizations reduce risk, which is why Clint suggests updating and reviewing your budget anywhere from a quarterly basis to an annual basis at the very minimum.
He isn’t the only one who thinks creating a budget is vital to the success of a business. Adanma Akujieze, CFO of Larson Design Group, has similar sentiments.
In Episode 19: Zero Based Budget: What Is It and Why Should You Care?, Adanma remarks that you have to be proactive and responsive to the changing tides of the economy, and that should be reflected in your budget.
And if the pandemic has taught us anything, it’s that ZBB – zero-based budgeting – works for everyone.
“Every dollar should have a name. It’s an approach that says: Why should I be spending on x versus…” – Adanma Akujieze
She also mentions that even though ZBB is time-consuming, it’s also a game-changer – you’ll never go back to traditional budgeting methods again. ZBB looks to the future and in uncertain times like now, it’s the only way companies will survive.
Cost Containment Strategies During Uncertain Times
It’s been a little over a year since our world was affected by COVID-19 and accounting executives are still struggling with how to sustain their capital. Will things resume back to normal operations? Over time they likely will, but that still leaves leaders with the lingering question of ‘Can we make it through this disruption?’ It’s a topic that’s all-too familiar for Peter Woolery, CFO of Summit Bicycles, and something he discusses on Episode 29: Managing Working Capital During Unpredictable Times.
According to Peter, the pandemic has forced his company to rethink its business strategies altogether as their online sales have jumped to over 700 percent.
“Biggest change is no longer just selling what we have in stock and refilling it the following week. Now we’re having to sell on future inventory.” – Peter Woolery
Even with an influx of cash flow, companies are struggling with where to allocate the extra dollars on their balance sheets. Their biggest worry? A sudden decrease in cash flow during the off-season.
“We’ve had to make a lot of adjustments, where we’re introducing more automations and selling to consumers in different ways.” – Peter Woolery
Leaders like Peter have found an upside to 2020 though - the ability to transition the way they operate their business. In fact, Peter wrote a program that automates entering sales into a POS – point of sale system.
Reducing expenses is not a new concept. It’s something that every company struggles with – from across-the-board cuts to budgeting and profits, businesses alike can glean from these episodes. You can hear what other leaders have to say and gain more insight on creating cost containment strategies when you tune in to CFO Weekly. If you have something to add to the conversation, don’t hesitate to get in touch – we would be thrilled to have you as a guest on the podcast.