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Reduce company expenses without loosing revenue or margin PDF Print E-mail
Written by Jim Green   

PART THREE OF A THREE-PART SERIES

ImageWatch the pennies and the dollars will take care of themselves. During tough economic times, clearly it is critical to minimize every expenditure. Obviously, it will help mitigate the inevitable downturn of sales and margin loss during the low points of the business cycle.

This is the third and final installment of a series discussing strategies for survival addresses the final necessary element, the reduction of outflow without a diminishment of revenues or margin.

To read the second installment in this series, click here.

These steps may seem self-evident but they are nevertheless worth listing and reviewing.

Renegotiate your leases or mortgages on real estate and physical plants - this can prove to be a little tricky but it can often be accomplished.

There are a few points to consider:

No property owner will come to you and offer to reduce your monthly lease payments on your store because business is bad. There is not a mortgage holder that will propose that you should reduce your mortgage payments because the country is going through a downturn. It is up to you to initiate the negotiation.

The last thing that property owners or lenders want to see happen is to get their buildings back. This is not the time to try to lease or sell vacant property and they are all-to-well aware of that fact.

Generally, retail furniture stores are nearly "single-use" buildings without going through major renovations. Furniture stores are designed for furniture retailers and are typically wide-open spaces. Very few furniture retailers are out looking for new locations and if your company ceases to occupy the physical plant, it will likely stay empty for the foreseeable future. Landlords and mortgage holders are very cognizant of this reality.

The time to renegotiate leases or mortgages is before the business is in jeopardy, not when it is a last ditch effort. Both property owners and mortgage holders understand this. Neither wants you to fail and often would far prefer to receive steady (albeit lower) revenues from you than no revenue at all (to say nothing of the ordeal of trying to re-lease or sell the property).

The tricky part lies in not sending the signal that your business is presently in trouble. Rather, the negotiating point is to convince the lessee or lender that your company is preparing in advance for any eventuality before it has to, and simply engaging in wise planning for the future. When the economic cycle once again turns positive (which it inevitably will), you will return to the original terms of the loan or the lease. It only makes good business sense and the lessee or lender will probably understand this.

Finally, go into your negotiation with the terms you would like to obtain firmly in mind. The savings may well be substantial and might increase your company's cash flow significantly. (Example: If you now pay $20,000/month on your lease and you are able to negotiate that down to $12,000/month during this downturn, there lies an additional $8,000 cash flow per month.)

Summary: Renegotiate all real estate leases and/or mortgages.

Renegotiate every other expense where outside services are utilized and where it makes sense.

Obviously, you probably can't renegotiate the costs of utilities but do you use an outside delivery service? Renegotiate. Do you use a local automotive repair company? Renegotiate. Do you use outside furniture repair technicians? Renegotiate. How about, television and/or radio advertising? Renegotiate. Newspaper or other print advertising? Some, you will be able to renegotiate.

In short, look at every recurring expense that represents a service performed by outside service personnel and renegotiate.

Summary: Renegotiate all service contracts and agreements.

Review every outside service to determine whether the service might be done in-house.

Often, during good times managers tend to opt for the more expedient and easiest approaches for needed services. Why not? Business is good, the company is making money and can afford it, and why be bothered.

During tough times, however, it is time to look at every outside service that is provided and determine whether it might be done in-house by existing employees. Does an outside janitorial company necessarily need to come in and vacuum and dust? Could a company worker not accomplish the task as easily and for far less expense? Can warehouse personnel change the air conditioning filters rather than the HVAC company that charges a high price for the filters, labor, and their profit? Might some bookkeeping functions not be performed by in-house personnel? Look at everything.

Summary: Review every outside service to determine need.

Review every expense to determine whether it necessary for sales revenues.

The question to ask is, "is the expense necessary for operating the business or making sales?" Does it save money? No expense line on the income statement should be immune from scrutinization and review.

During down times, look in the corners of the warehouse. Small savings add up to big savings. On the showroom floors, are lamps lighted with frosted 75-watt bulbs? Change to 40 watt clear (clear bulbs are brighter than frosted bulbs) bulbs and save a significant amount on kilowatt usage and lose nothing on the floor. Better yet, use energy efficient, fluorescent bulbs. Turn the air conditioning to 78 degrees rather than 72 degrees. Turn off computers overnight.

Summary: Look for the pennies to save.

Every few months, revisit delivery schedules and territories.

The time and costs (payroll, gas, wear and tear on the delivery van, etc.) for delivery drivers and helpers to simply drive to their assigned delivery zones can be significant. If a driver and helper can visit distant delivery areas one day less per week substantial savings may result. Revisit methodologies, in delivery to distant areas.

Summary: Analyze customer distribution methods.

Look for even the smallest expense items.

Does the company buy branded legal pads where generic pads from the office supply store would do? How much paper is the company using in the computer age that may be completely unnecessary? Is cardboard from the distribution center or delivery trucks that might be sold, being discarded?

Summary: Look everywhere for expense savings.

Certainly, one of the greatest assets a company has is its staff of employees.

These folks are on the front line every day, and may have an even keener sense of where there is waste and where there may be operating cost savings. Bring them into the fold and solicit their ideas as to expense reduction. It is all one team and every employee from CEO to janitor wants and needs for the company to survive and thrive. For that matter, all stakeholders in the business should be queried as to waste and efficiency. You may be surprised at the ideas that are received; and if a really good one comes along, be sure to give credit to where it is due and make it worth the while.

Summary: Look to employees and other stakeholders for cost containment ideas.

Get the company's inventory in-line and ultra-clean.

Sell discontinued and distressed merchandise at cost or below if necessary to free those cash flow dollars. Liquidate any damaged merchandise for whatever price can be generated rather than leaving it in the racks. Get rid of it and take the few dollars you get. If an item is on the floor and not selling, don't wait for the next furniture market to replace it. Sell it off and replace it, now. Make certain that your inventory investment is resulting in the greatest return.

Summary: Clean up your inventory.

Emphasize programs that increase gross margin return on investment (inventory).

There are today many merchandising and marketing programs offered by manufacturers and furniture suppliers aimed at reducing the inventory levels at retail and significantly increasing a retailer's Gross Margin Return on (Inventory) Investment. Take advantage of those that fit into the merchandising and marketing strategies of the company. Obviously, if the merchandise does not make sense to the strategy or is not saleable, then it is not for the company. The less inventory on the books, the better.

Summary: Exploit quick ship programs that lessen inventory exposure.

Rather than lay offs, managers may wish to reduce hours.

Certainly, one of the hardest things to face in difficult economic periods for owners, executives, and managers is the prospect of the need to lay-off employees. Not only are these emotional decisions but from a practical standpoint every businessperson wants to retain the most productive and effective people.

Consider alternate arrangements. Instead of laying-off workers in a particular job category, a possible reduction in the hours worked for all employees in the sub-set might be in order. For instance, instead of 40 hours, each worker might be reduced to 35 hours; this is over 10% reduction in payroll. Each worker might earn 10% less, but might this not be preferable to being out of a job?

Summary: Consider alternate strategies designed to reduce payroll expense without a wholesale lay-off of staff.

Evaluate managers, supervisors and employees to determine their importance to the company.

Now is the time to review employees and retain workers that are the greatest assets to the company. Obviously, there may be some that have been instrumental in past successes so decisions must be made in light of this loyalty. Some of these employees might need to be laid off. Others might take other positions in the company as they open up through attrition or others means.

A company might also wish to look into early-retirement programs for some higher paid employees. A little extra expense now might be very advantageous later.

Summary: Re-evaluate all employees as to need.

There are very few businesses that don't have non-productive, non-inventory assets hanging around.

It might be a ten year old forklift, some display racks, an old van or truck, a pre-computer age inventory system, cash registers that have been replaced, in short, assets that are no longer of use but are taking up space and can be sold. Sell them for whatever you can get. Clean house and use the money, however small, to add to the cash flow of the business.

Summary: Clean house of all unnecessary, unused assets and convert to cash.

Use the downturn wisely to train, train, train.

This recession will not last forever. Many of the employees that remain are the same ones that will likely be the staff that will facilitate the company's future success and growth. Use any down time to teach and train these workers and managers so that when the turn around does appear, the company will be ready.

Summary: Have your company ready when the economy is set to recover through training.

Keep spirits in the company high. Recognize, and be sure your people recognize, that economies have turned sour many times over the years and always recover with time. Indeed, companies that survive generally come out much better, stronger and more efficient. Run the best and most efficient business you can.

Re-evaluate your strategies and tactics throughout the company and be sure they are effective for the time. Above all, don't make kneejerk decisions, don't simple react, and dodge bullets. Many other ideas can be found in my three book set, Furniture Retailing 101.

Jim Green is the author of Furniture Retailing 101, a book written after spending more than 30 years as an executive for a Top 100 publicly held furniture retailer in the United States, an independent furniture retailer and, finally, as a manufacturer sales representative. To order a complete set of his books for $90 (in Canadian funds, including shipping and handling or to ask Jim a question, send an e-mail to

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