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Twelve Ways to Cut Costs Without Cutting People

Written By: Richard Rabins, Chairman, Alpha Software

The end of Q4 08 saw the U.S. economy drop a staggering 6.4 percent. It could be argued that businesses should cut costs by at least 10 percent to simply stay afloat. But do you have to layoff hardworking employees just to make the numbers?

While layoffs might cut costs in the short-term, the direct and indirect costs of downsizing could paralyze your company’s long-term revenue generating streams. The direct costs of layoffs from outplacement services and severance pay can add up initially, but indirect costs, such as losing experienced employees who have strong relationships with clients, can cause lasting damage to a business.

Here are some creative ideas that will keep people working, keep employees loyal, and help your business conserve capital during the downturn.

  1. CUT PAY, NOT PEOPLE. You might be able to save the same amount of capital without laying off a single individual if the body politic is willing to share the pain. Poll your employees and see how much they’re willing to give back in order to keep their friends, colleagues, and themselves working. If the alternative is a layoff, most, if not all, of the staff will likely be willing to take a pay cut.
  2. GET THE C-SUITE TO STEP UP. Make sure the company’s leadership is included in any pay reductions. If you can afford it, take a bigger pay cut than the body politic to strengthen loyalty among employees. If you cut pay across the board, scale it so employees at the lowest end of the pay scale lose less per week than employees at the highest end. Those better off typically have more savings, and a better ability to cope with a pay cut.
  3. INCREASE EMPLOYEE HEALTHCARE CONTRIBUTIONS. This can be done as part of the pay cut, again, to share the burden. Obviously this reduces the business expense. And to minimize the impact on employees’ paychecks, set up a plan under Internal Revenue Code Section 125 (known as a “Section 125 plan”). This allows employees to pay a portion of their insurance premiums with pre-tax dollars, leaving more cash in their checks.
  4. ALLOW FLEX-HOURS. Give full-time employees the ability to work fewer hours, relative to the amount of their pay cut. Let them decide on a flexible work schedule with other workers to ensure the business is appropriately staffed, and customer service levels can be upheld. The benefit: Your staff can supplement their income through part-time or moonlight work, and earn back some or all of what they lost by agreeing to a pay cut. This also builds loyalty to management because employees will feel they’re being given a chance to help themselves while also helping the business.
  5. GO TO A FOUR-DAY WORK WEEK. This is a variation on the flex-hours scheme. Have some employees work Monday through Thursday, while others work Tuesday through Friday. This gives employees a full 8-hour day they can leverage for a part-time job, to take up some of the financial slack. Or they can enjoy three-day weekends, which also help justify a shared pay reduction. Even better: Have executive management continue to work a full five-day week, even with their shared pay cut. Again, this will build loyalty among staff, who will see management sharing the pain and actually working a little bit harder than everybody else is expected to. You might also find some staffers take a cue from management, passing up the chance for a day off and working the full five-day week too.
  6. EMBRACE VoIP. Voice-over-IP (Internet telephones) will dramatically cut your local and long-distance charges and other telephone expenses. This is especially important if your business currently uses a PBX. Contact your Internet service provider to see which VoIP system they recommend. Some of the major providers offer bundled VoIP packages for small businesses. You can also implement free Internet voice and web conferencing, such as Skype. Every time you use Skype, the calls are entirely free of charge—and you get video, chat, and document sharing to boot.
  7. CUT ENERGY COSTS. It’s not hard to reduce your energy dependency. Lower the thermostat in the winter, raise it in the summer. Do you really need all those fluorescent lights? And should they all be blazing brightly all day? Turning off every other tube will cut your lighting bill in half, and probably won’t have a detrimental effect on ergonomics or productivity in your organization. This also demonstrates to employees in a visible way that the company is working to cut costs beyond payroll and health insurance.
  8. BOOST LOYALTY, NOT RESENTMENT. Be careful not to do things that will build resentment among employees. Typical mistakes made by management during tough times: Leasing new vehicles for executives, flying managers first class, holding lavish sales meetings, etc. Certainly the business can’t be put on hold. But when you’re asking employees to take on some financial pain, the business needs to demonstrate that it is economizing everywhere. Extend the leases (or downsize to more practical vehicles), fly coach, slim down expense accounts, and so on. Make certain employees don’t feel that managers are leading the good life, while the staff is weathering the storm.
  9. TAP THE BARTER ECONOMY. Contact partners and suppliers to see who might be willing to barter goods and services. Everybody is looking to cut costs. You might find several suppliers who are willing to barter. Don’t forget that bartered goods and services are taxable, and that you must have accounting mechanisms in place to record and report values on annual tax returns. But the barter economy can be effective for companies that provide services, which they can trade for goods needed to operate the company. This can have a substantial impact on the bottom line.
  10. AUTOMATE USING FREE OR LOW-COST SOFTWARE. Instead of automatically renewing costly software licenses every time a vendor pushes an upgrade, consider open source and free alternatives. Before buying new software or hiring a consultant to automate business functions, think about building the solution in-house. Tools such as Alpha Software’s Alpha Five make it easy for anyone with basic computer skills to build robust business applications in very little time, for very little cost. If you have someone who is good at Excel, you can leverage their skills in Alpha Five to create bullet-proof business applications that run on the Web. Developing an in-house Alpha Five guru can literally eliminate 80 to 100 percent of the cost of custom business software.
  11. GET EMPLOYEE BUY-IN. Your people are your most valuable asset. They’re the front-line troops who can spend or save dollars every day of the week. They know where the rubber meets the road better than executives and managers do. Ask them for their ideas on how to cut costs, boost productivity, and improve margins. At least one great idea for cutting costs while maintaining agility and competitiveness will likely emerge
  12. .HANG AMERICAN FLAGS EVERYWHERE. This single patriotic act reminds people that we’re all going through this crisis together. As the saying goes, united we stand, divided we fall. Hoisting Old Glory will emphasize the importance of hanging tough, and hanging together.

Richard Rabins is co-chairman of Alpha Software, which he co-founded in 1982 with his brother Selwyn. Richard is responsible for managing the company’s sales, marketing, and daily business operations.

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