Money Allocation Tips for Small & Medium Business

In my last article I discussed ten growth factors for small and medium businesses (SMBs) during the recession, and as promised, this article discusses money allocation tips during the recession, i.e., where to cut back and where to allocate funds for best results. It will probably help if you read the last article before you read this one.

Get the best finance VP (CFO) your money can buy. Many finance VPs are glorified accountants, but you can’t afford this when times are hard. Your finance VP is a key executive and a huge factor in the health of your business, and needs to be strategic, creative, and an expert in cash flow management. Penny pinching isn’t necessarily a success factor during tough times. Your finance VP needs to know when to strategically invest in your business, when to shut the purse, and how to allocate your funds for best results.

Shed low performing business & product lines. Perform detailed analysis on your business lines and product lines, and either sell or shut down the ones with low ROI. You have better things to do with your money. This doesn’t apply to new operations that require more time to show returns.

Evaluate marketing and advertising costs. Marketing and advertising are major cost centers, so take a step back and reconsider the ROI on each aspect of your marketing efforts including print, email campaigns, trade shows, online programs, advertising (both online and traditional). Move funds into higher ROI activities and eliminate or reduce your lower ROI activities. Definitely look into social media. It’s here to stay, and as I mentioned in my last article, it will turn your marketing department upside down.

Evaluate your customer service processes. Customer service is one of the main cost centers in service oriented companies. Take a serious look at your customer service processes and see how you can reduce the need for “contact”. Can you improve your product documentation? Better yet, can you move all your documentation and “help line” online (including videos, flash presentations, photos, diagrams, etc.)? The cost of developing online help is minimal compared to the cost and headache of maintaining a customer service department, but you have to do it right otherwise it will backfire on you.

Consider outsourcing. If you can let go of the control a little, you can save a lot of money by outsourcing, as long as you don’t outsource your core competencies. It’s a fine line and it’s easy to lose track of your core competencies in your quest to cut costs.

Boost R&D. I mentioned this before, but it bears mentioning again. Times will improve at some point, and you need your competitive edge when that happens. See my last article for more details.

Re-negotiate your building’s lease. Yes you can. At least you can ask.

Evaluate the cost of ownership of all office equipment. Unearth the hidden costs of maintenance and lease agreements for: PCs, laptops, hardcopy products (printers, copiers, etc), network equipment, and other hard assets. Get rid of the unused equipment especially those with maintenance agreements. Re-negotiate the lease and maintenance agreements for the equipment you plan to keep. For new purchases, consolidate your hardware vendors and negotiate a hard deal with one of the top three in the field. Businesses spend up to 3% of revenues annually on hardcopy costs, most of which is unnecessary. Simply replacing copiers with networked scanners will save a lot of money in equipment and consumables costs (paper, toner, etc), save space, and make your data more accessible. (I know far too much about the hardcopy industry – ask me and I’ll tell you more.)

Remove the bottom 10% of your workforce. All companies carry dead weight in good times, but if you haven’t already cleaned up, this is a good time to do so. Getting rid of low performing employees doesn’t necessarily erode morale (counterintuitive, but true).

Pay cuts, forced vacations, bonus cuts. If you haven’t already done this, this is a better alternative to layoffs. Make sure everyone understands this is temporary and stand by your word, otherwise, the minute the market turns around, your best performers will take off. One day every two weeks forced day off, and/or 5-10% pay cuts seems to be the norm these days. Pay cuts for higher paid personnel and executives should be more than others. In tough times, bonuses only go to those who directly increase the top-line or bottom-line. You’re not Goldman Sachs, and you don’t have to act like them.

Travel costs. Another one that you’ve probably already considered. Make sure to invest in technologies such as web conferencing to simulate face to face meetings with clients and partners. Consolidate all your travel bookings with one agent to get better deals. Mileage points stay with the company not the employees.