Taking on Goliath: How Leaner Operations Can Win Against Larger Budgets
An Interim CFO Shares Strategies for Creating a Sustainable Plan to Lower Operational Costs
By Kristen McAlister, Co-Owner of Cerius Executives
As businesses continue their post-pandemic recovery efforts, many are laser-focused on how to lower operational costs. Others are focused on accelerating growth and exploring new opportunities to surpass the competition. Whatever the goal, reducing expenses and restructuring cash flow can both play a vital role. One interim CFO shares several strategies to help smaller businesses take the lead—even if their budgets can’t contend with those of their larger competitors.
Today, you can distinguish companies ahead of their competition by the structure of their operations. But what if your business isn’t the market leader? Or if you don’t have the largest budget? Can you outpace the competition another way?
One interim CFO from Cerius Executives says yes. He explains how, through effective budgeting and operational planning, many recovery-minded companies can become leaner, faster, and stronger than their competitors.
“These strategies are especially relevant for businesses trying to get back on their feet in 2021—and they apply to any size business in any industry,” said Pam Wasley, CEO, Cerius Executives. “They can help businesses implement a sustainable, long-term strategy to lower operational costs. The end goal is to ultimately increase cash flow, which can then be invested in business growth.”
Strategy #1: Eliminate dysfunctional (and costly) processes.
Your teams use dozens of business processes every day. Whether they’re generating reports, manufacturing products, resolving customer complaints or contacting new clients, they go through the same steps each time.
Unfortunately, when these processes are dysfunctional and inefficient, they take more time and cost the business money. You’ve likely seen the financial impact yourself: poor product quality, missed deadlines, bottlenecks, mistakes, unhappy customers, wasted resources and poor productivity, to name a few.
Over time, processes often get expanded as a result of a growing need or in response to issues. The processes rarely get reviewed to remove excess, redundancies, or to reduce too many hand-offs. Processes are also not often documented. This leads to interpretation, variance and reinvention. All are culprits of operational dysfunctions and waste.
When everyone follows a well-tested set of steps, there are fewer errors and delays, there is less duplicated effort, and staff and customers feel more satisfied. By streamlining your business processes, you can spend less money in day-to-day operations, which can help you become a “high performer” and achieve more in the same or smaller budget than your competitors.
Strategy #2: Create high-value operations.
Another way to optimize expenses is to find ways to provide the highest value at the lowest cost. This is not a program, but rather a philosophy that businesses use to build their strategy and operations, in an effort to pay bigger dividends.
We see this often in growing companies when there’s a need to get a new set of activities done. The default is to use an internal resource—but that could mean someone who doesn’t have the right skill set or someone who is over-qualified. A smarter choice may be to hire an interim executive or part-time project manager, who would provide the expertise while keeping costs down.
All businesses must create value, but some types of value (and methods of value creation) are more useful and profitable than others. Many high-value activities can be found within operations—activities like quality control, managing purchases, storage, inventory control and logistics. By optimizing operational efficiency, all of these activities can directly impact customer satisfaction, waste reduction, profit margins and cash flow.
Strategy #3: Find new ways to reduce operational expenses.
Your strategy to lower costs should not focus on cost-cutting, but rather on cost-saving. The former looks for ways to bring down expenses through shortcuts and by eliminating activities. Cost-saving, on the other hand, is an effective cost management strategy that maximizes value from the same (or fewer) resources.
For example, one company wanted to spend as little as possible on their accounting staff. So they hired the cheapest accountants they could find (not the most competent). In the end, they spent more money on cleaning up the financial statements, bringing them current, and completing the year-end audit than they achieved with the original savings.
Moral of the story: You can’t grow a company profitably by simply focusing on cost reduction. So instead of looking for the lowest cost within operations, you should look instead for the largest value per dollar spent. That means seeking efficiencies, reducing waste, and optimizing your workforce productivity.
How can you do this? Take a look at a visual representation of your business expenses in the form of charts and graphs. Through this method, you can spot better ways to meet your operational needs while reducing costs.
Once you know the improvement areas, you can go to work finding solutions. For example, by working with your vendors directly, you can get bulk discounts and early payments. Another way to bring down expenses is to go co-op through purchasing groups. Or hire an interim CFO to thoroughly examine your financial processes, recommend improvements and realize cost savings.
Strategy #4: Create strategic cash flow.
Whatever your size business, you always need to understand where your money is going. List all of your expenses and then pay yourself first to stay ahead of unexpected costs. Strategically, you should also count the receivables line on your balance sheet and include that as a source of cash inflow. Ask your banker for faster billing solutions so that the funds from your invoices are accessible to you more quickly. Having quick access to your money gives you more breathing room to pay bills, make investments and capitalize on new growth opportunities.
The most common metric to use is the cash conversion cycle. This is the company’s ability to convert each dollar spent to a dollar received from income. This is a good starting point, then examine each step in the process to identify where there are lags.
Strategy #5: Be agile, nimble and quick.
During an uncertain year like 2021, most organizations are seeking recovery, growth, or a more secure competitive advantage. But being a market behemoth isn’t necessarily an advantage. Oftentimes, smaller companies have the edge. Unlike large corporations, smaller companies can often refine and reshape their business model to respond to fast-moving markets.
For example, a local clothing retailer may be able to quickly create products to capitalize on fashion trends or quickly pull inventory based on declining demand and underperforming styles.
“Those that thrive are quick to recognize signals of change and act on them quickly,” said Wasley. “These companies have worked out how to experiment rapidly, frequently and economically—not only with products and services but also with business models, operational processes and marketing strategies.”
“Yes, big businesses will have the advantage of size and scale—but they can’t always respond swiftly to market trends because of internal red tape and bureaucracy,” she adds. “A well-tuned small business can easily outperform its larger counterparts in customer service, trend identification, operational agility, product output, and quantity control. Agility is key.”
The Bottom Line: Lower Operational Costs
As organizations everywhere consider their business priorities in 2021, they may need to explore all-new ways of thinking and working. An interim executive—like a CFO, CEO or COO—could help by bringing a wealth of business and leadership experience, and can help your management team adapt to a new economic reality. They can also step in immediately to temporarily fill an unexpected opening on your management team—or to execute a mission-critical project. Interim executives are ideal for creating strategic roadmaps, kick-starting special programs, and projects, and can provide valuable mentoring for younger executives.
With many advantages—and zero long-term commitment—hiring an interim executive to support your leadership team could be one of the strongest pandemic recovery moves you can make.