Our businessmen are going through tough times right now. The current crisis is fundamentally different from the crises we are already accustomed to. If previously it was necessary to slightly reduce operating expenses and simply wait for the state of the economic downturn, now it is often necessary to increase expenses. Moreover, to do this in an acutely unstable and long unpredictable situation, without any guarantee of success. An entrepreneur, while dealing with expenses, must be a virtuoso surgeon who not only cuts out diseased cells, but also ensures that the patient is not crippled.
It is impossible to reduce chaotic and emotional, because any acute economic crisis is always a blow not only to the wallet, but also to the psyche of entrepreneurs, their reaction to external threats is completely illogical. The architectural bureau has stopped buying toner for professional printers that print drawings. All work stops, the hunger games begin for the opportunity to print the project before negotiations with the client. The publishing house replaces live translators with machine translation, followed by lithographic processing by cheap copywriters – books are discontinued. The resort hotel saves on booking systems – even old loyal customers stop coming there.
The correct action algorithm is as follows.
Step 1. Calculate the decline in income soberly and realistically, not your hopes, fears, doubts. The decline can sometimes be very serious from the previous level of income.
Step 2. Calculate the actual costs of the business to cover this revenue.
Step 3. The “income minus maintenance costs” difference covers all the main expenses of the business and the owner’s fair dividends.
Sometimes you need to increase costs rather than reduce them. In general, reducing spending during a crisis is far from being a goal and a system-building function. Compare it to a simple life situation that each of us can understand. If you lose your job, you can cut costs very carefully and powerfully – switch to cheap products, refuse taxi rides, fire your babysitter and caregiver – this will provide some relief in the moment. But the main thing that needs to be done is to urgently find a new job, restore income.
In business life, investments are needed to start new business lines that will replace the lost or declining business lines. If, against the backdrop of an economic downturn, the owner of a small block of commercial real estate drastically reduces the cost of operation – turning off the heating, reducing cleaning, removing the air conditioners – he will only lose more customers. If he finds a new and interesting concept, decorates the building both inside and out, or at least invests in advertising with bloggers, he will soon attract a new breed of tenants. Some owners quit their jobs and leave the country, while others buy non-management manufacturing facilities and rebuild new manufacturing concerns.
Never stop paying dividends!
Small and medium-sized businesses rely on the energy of the owner. Mandatory fee to the owner is a law similar to the laws of nature. In case of non-compliance with this law, we observe a complete violation of the ecology of the business structure. If a business does not pay fair dividends to its owner, it ceases to be a business and becomes a miserable poorhouse.
Oddly enough, contrary to the popular belief that owners are professional “hijackers” obsessed with only their personal profits, more often they are extremely deeply involved in the development of their business, both financially and emotionally. In the literal and figurative sense of the word, they forget about their interests, because they are completely united with their offspring, overfeeding their business with personal money.
In one of the regions, the production of thermal underwear has developed. There were years when everything was fine – they bought new machines, produced new lines – thermal underwear for fishermen, thermal underwear for hunters, fleece briefs for pensioners. Each new collection sold out instantly. Gradually, more and more orders began to go to China. Retail chains did not care about the quality and interests of the Russian manufacturer, the main thing was the low purchase price. The owner chaotically began to cut costs and reduced the wages of the hard workers and did not update the machines and did not pay dividends to himself. The ending was sad. While the business had to close after a long agony, the most dedicated employees and the owner himself suffered the most financially.
The opposite strategy – investing in a new product, raising its prices, reversing a negative market trend – will work much more efficiently. The worst thing, of course, was not to act heroically to a victorious, or rather, to a losing end, but to close the business correctly and on time. Had the closure been carefully timed and executed wisely, the founder of the company might have had the power and opportunity to take a break and open a new business to create jobs and contribute to the public good.
It is important to remember that with any reduction in costs, whether chaotic or carefully calibrated, this is always a huge burden. Impulsive cost-cutting frays nerves, wastes money, slows business development. It requires carefully planned and calculated, strong intellectual work and “political will” in business. It is always better to choose the option that will provide the most benefit and lead to the best solution. The main thing is to never take the position of an ostrich hiding its head in the sand from the backlog of business problems.
The author expresses his personal opinion, which may not coincide with the editors’ position.