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Strategic Advisory Coronavirus Q&A: How do I prioritize cuts?

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Question: Our sales have dropped dramatically due to the Coronavirus outbreak. We need to cut costs. How do I prioritize the cuts while keeping my employees and suppliers?

The Strategic Advisory Team Answer: The first thing you need to do is set a target reduction. Most companies will choose to set that amount to break even from a cash flow perspective (without your normal target profit). Be conservative as it is hard to make major cost cuts. It is easier to make several small ones. And it is easier to add costs back in the future. The money you spend today is gone for certain. Think about cash preservation.

First, sort by fixed vs variable costs – decide what’s possible and don’t worry about the rest. Unfortunately, most companies’ largest single expense is payroll, so you’ll likely need to immediately focus your attention there. Decide whether you want to spread the reduction over the entire employee base or to layoff individuals. Don’t forget to factor the following into your analysis.

1) Accrued vacation or other costs that you may have to pay upon termination
2) Payroll lags up to two weeks, so you likely won’t see the cash relief for 1-2 weeks

Call your vendors and suppliers and clearly describe your problem, and what you need from them. Be clear, direct, and make sure they know you’re being as fair as possible.

Above all remember that the survival of the organization is more important than any individual vendor or employee.

Everyone is being impacted to some extent, so make sure your actions are relevant to your specific situation.

 

DISCLAIMER – Due to the daily changing environment and guidelines being provided by the government, this information could be outdated. Please contact our office for the latest updates and guidelines. Optima Office is not responsible for any actions taken due to the information provided. The information provided here is for instructional purposes and does not represent legal advice being given by Optima Office.

 

 


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