Fernando Labastida, Communications Specialist

So maybe you’ve survived the recession up till now without having to make any cuts. You’re either lucky or you’re from Texas.

Well never say never.

When things get tough, real tough, you have to cut expenses. What’s the first thing most businesses think of when they want to reduce their expenses so they can survive another quarter? The largest expense category on the books: labor.

But not so fast: you may be cutting valuable muscles and brains.

In a recent article, Rodrigo Rosas from Axeleratum wrote a blog post about “How to Cut Costs Without Affecting Company Operations.”

1. Take a look at the big picture

Literally climb a ladder and look at all your expenses, either using your income statement or using your business intelligence tool, so you can identify what your biggest outflows are.

2. Classify expenses into indispensable and dispensable

After identifying all your expenses, now separate them out into indispensable and dispensable. Rosas says there is only one criterion by which you need to categorize your expenses in this way: whether by cutting a particular expense your company can continue as a going concern or not. Classify the expenses that affect the viability of your company as a going concern as indispensable.

3. Classify the impact of the indispensable expenses

Rosas says the above table is a key tool to categorize these indispensable expenses.

The impact of each expense is measured considering how long your company can operate without spending a dime, and alternatively what would be the impact of not cutting that expense (from temporary suspension of company operations to complete liquidation).

At the same time, classify those for which you have the ability to negotiate a delay of payment (credit) and those for which you can’t. This will provide you with the clarity to focus on resolving your situation in the most timely and effective manner.

Using this matrix, Rosas says, focus on solving the “A” expense first, the one with the biggest impact on company operations and for which no credit exists. Successively go down the list, from B to F.

With these three steps you are able to take a more objective approach when it’s time to “cut the fat.” It won’t be an easy task Rosas says, and he recommends getting outside help. But it’s got to be done.

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