Keeping profits up in a down economy.

• Author: Pinkus, Hugh

Several steps taken now can help keep your firm profitable through the down economy. First, to prevent the recession from cutting into your company's profits, streamline your cost structure. Most firms' administrative and operational infrastructures tend to grow in good times, but are rarely reduced in a down economy.

Understanding your company's cost structure is essential to reducing costs that don't impact sales. Both client-facing and support staff are involved in indirect expenses on a daily basis. They are an excellent resource for identifying wasteful practices.

With this input, along with current sales projections, private company financial executives can reasonably determine available operating funds. Knowing how much must be cut is key before actually beginning the process as there may be more than expected capital available.

After determining the available working capital, formulating a business strategy is critical. Of all the initiatives currently underway, which are most likely to earn revenue the fastest? Also, which of your initiatives would be the easiest and most cost efficient to complete? These programs should be given highest priority.

Labor Optimization/Communication

The most obvious way to cut costs is to reduce staff. But maintaining upbeat employee morale is crucial to ensuring that productivity and the work environment remains strong. It's also important to ensure worker participation by including staff in communications.

Thus, this is an ideal time for additional training. Cross-training boosts employee productivity and flexibility as they master the skills to "cover for" each other in the event of an illness, vacation or termination. This investment in extra training also streamlines the process flow and provides deserving workers with extra responsibilities.

To cut labor costs, financial executives should also examine their contractors. Though on the payroll, contractors usually have other clients to distract them. If there is a way to accomplish objectives using current employees instead of contractors, consider that option.

Sales and Variable Costs

When projected sales decreases during a recessionary period, production levels need to drop proportionally. This is not the time to tie up working capital in the form of excess inventory.

Management must identify costs that vary with production levels and ensure that those costs are being reduced appropriately. Pay attention to the warning sign of excessive...