If your business goes through a difficult period and cash flow is not what you would want it to be, then the temptation for a little cost-cutting can become overwhelming.
Often, businesses will have a few areas of low-hanging fruit that could have done with being trimmed down anyway. Going through the process of reducing unnecessary expenditure can make a real difference to the amount of money your company has in reserve, so it makes perfect sense to tighten the company belt if things aren’t quite going the way that you would have hoped.
Eventually, however, there are no low-hanging fruit left to pick. Do it for long enough, and you’ll soon run out of mid-hanging fruit too. When the simple ways of cutting your costs - measures that can reasonably be described as efficiency savings - haven’t managed to stabilize your business finances, then what happens next?
You have two options -
1) Seek some sort of extra finance for the company. This could be through investment, selling shares, or just obtaining a bank loan if you suspect the blip is only temporary.
Or, there’s this one. Sadly, many companies run themselves into serious trouble when they follow this path, but it’s still the primary choice for a multitude of companies when they run themselves into issues…
2) Keep cutting, and cutting, and cutting…
Rather than cutting the costs of sensible areas that probably could have done with a trim anyway, this kind of exercise results in relentless cost-cutting without any sign of letting up. It is an age of eternal adversity, and it’s a very bad sign indeed.
Let’s focus on the primary area that employers tend to look when they need to trim some costs; the number of employees you have. When a company is in trouble, you will see an endless parade of reports on job losses and job uncertainty - so cutting employee numbers seems to be an established way of covering a cashflow problem.
However, sacrificing employees in the name of trying to right your business can be more problematic than you might think. You are, after all, making these cuts to try and ensure that your company can flourish in the future - correct? However, you might find yourself thinking you can reduce staff down to the bare bones.
Which, of course, you can… but don’t fool yourself into thinking your company is going to function in the same way it used to before the cuts got deeper and deeper. If you truly want to turn things around for the company you own and want to see flourish, then can you actually afford the drop in productivity and earning potential?
Then there is the high risk of ending up with legal problems as a result of having a workforce stretched too thinly. If you cut too deep and too fast, you could soon find yourself facing calamity and having to face up to an injured employee backed by Truitt Law Offices. Then, your entire business could be at risk as you deal with legal proceedings - when all you were trying to do was save some money in the short term.
So while it may be established that cutting your workforce is a good way to go about things, chances are, it could end up costing you more than you imagined. The risks to life and your profit margin are serious; you have the number of employees you have because you know you need them. Look for extra funding or other areas to cut before you take the swinging ax to your workforce.
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