Cutting Your Costs

I just read an article at Kiplinger that I would like to comment on and share with you. The title is called “What Businesses Are Doing to Cut Costs.

Kiplinger is simply reporting what businesses have told them what they are doing without commentary. While this is good journalism it makes for unexciting reading for all except those that really care about this stuff.

Many of these things are very agreeable and are things companies should have been doing all along. In good times and bad…

  1. Curbing travel
  2. Watching energy expenses
  3. Repairing rather than replacing

Yet many of these things are disagreeable and can have really bad effects on the overall business…

  1. Paring Benefits
  2. “In-sourcing”
  3. Shifting to a commission only sales force

Some of your best employees work for you because you have great benefits, because they can concentrate on what they are best at, and so they don’t have to worry about paying bills when the economy goes down.

These cost cuts I believe will do more harm then good. The companies that keep some of these costs will find themselves able to hire the best employees out there because employees will only stand so long for this form of treatment.

The overall thing I want to emphasive is that cutting material costs is great, cutting human costs is bad!

People are what make your company run, and they are what make your business great.

Human costs should be the last costs to be considered to be cut. There is a certain social contract that needs to be upheld. That is that an employee has a certain expectation that their pay (including benefits) will not go down after they are hired.

A business has a certain expectation that they will only hire employees they can afford, both now and in the future. To hire someone you can’t afford is irresponsible.

Drastic times call for drastic measures, but these are not drastic times, yet…

Yes, some industries are failing and they should fail. The captain should also go down with his ship. But companies that are still relatively healthy should not be cutting pay or laying off people.

I forget where I read the story but I once heard about a company that volunteered to take a pay cut across the board (owner, manager, and employees) so that they could save it. And this was a last resort. And again I emphasive it was voluntary for everyone. This was a decision made by consensus.

If I remember correctly this was some sort of family owned manufactoring operation that employed hundreds of people.

Your employees know where to cut costs. Ask them. They will gladly work harder and make due with less if only you would not ask them to leave or take a pay cut.

This is mainly a message for everyone who is a business owner and/or a manager of a company, but it is also for every employee too.

You as an employee have a certain responsibility in an organization because you are a part of it. You have a responsibility to speak up and shed some light on the truth.

You have a responsibility to tell management ways in which you can cut costs without cutting people. If you don’t know of any right off the bat, start looking. I guarantee people on the front lines can find ways to cut costs.

Lastly, remember that most of this is psychological. We live in a world of plenty where most situations can be made into a win-win for everyone.

Yes, many people in the world are much poorer than us, and we have to remember that. What we fear most now is a decrease in our standard of living. What a terribly selfish thing to be afraid of!

For this very reason I started the value project. So we could all think of ways to add value to the world and to other people’s lives. I personally believe most of us are focusing on the wrong things right now, and as soon as we start focusing on the right things. Well, maybe then we will see a recovery sooner than we think…

6 thoughts on “Cutting Your Costs”

  1. I agree with your overall point, the way I perceive it, that a firm’s greatest asset is its employees, especially with regard to tacit knowledge, which is difficult, if not impossible, to replace.

    To play “devil’s advocate,” I would argue that group health benefits, especially for the vast majority of us who are relatively healthy, are more expensive than a high deductible individual plan.

    When I started my own business, I obviously had to shop for my own family health coverage. To my surprise, my overall cost is lower than with my former employer’s group health plan. Premiums are lower. My deductible is high but I can make up for the cost by managing my own risk with emergency funds and an HSA. I get more tax deductions and I get discounts at many doctor’s offices for paying up front rather than making them “chase the money” through a maze of insurer red tape.

    As my company continues to grow and I hire employees, I will not pay for health benefits — I will teach my employees to serve their own best interests by helping them find health coverage. I will teach the entrepreneurial spirit — that working for yourself is ultimately a lower risk than working for someone else.

    I will also offer a generous profit-sharing plan, include employees on company decisions, and offer the ultimate opportunity to become a partner of the firm. Most employees would say that they want to feel included and valued, rather than receive higher wages.

    Part of the problem with our society is that we are trained to expect others to provide for our welfare, which paradoxically leads to higher monetary costs. Most employees (and employers) look for what they can receive, rather than what they can give. This creates and perpetuates the problem we face today.

    In my view, “giving” is not showing someone the easy path — it’s showing someone how to provide for them self by enabling them with knowledge and confidence — not giving them “benefits” that promote dependency.

    “You give but little when you give of your possessions. It is when you give of yourself that you truly give.” ~ Kahlil Gibran

    “The value of a man resides in what he gives and not in what he is capable of receiving.” ~ Albert Einstein

    Kent @ The Financial Philosopher’s last blog post..Financial Health: ‘Personal’ Comes Before ‘Finance’

  2. Being frugal is the key. We’ve learnt that we need to be frugal to secure our own financial future. And this applies to businesses as well. Many of the life’s lessons are applicable to both individuals and businesses.

    Too many businesses are too lavish when they’re enjoying a boom, hence failing to save enough to deal with the unexpected turn of events. If they’ve enforced a tight control on expenses ALL the time, many cost cutting measures are unnecessary when things are going bad. The impact of the downturn will be minimised.



    Mark Foo |’s last blog post..6 Personal Finance Lessons I Wish I Had Learnt Earlier In Life

  3. I worked at one of these companies, where an across-the-board pay cut was instituted. In some ways, it is less humane than the alternative, eliminating a few positions completely.

    It forces everyone to work the same hours for less pay, and denies them the opportunity to seek another position while receiving temporary unemployment benefits.

    There are no easy answers here. If the business goes under by failing to maintain fiscal discipline, then everyone loses their job immediately and irrevocably.

    Chris | Martial Development’s last blog post..What are Karate Kata?

  4. @ Chris – I agree it is less humane. It truly is a way for companies to retain their employees and cut costs. Yet I still emphasize that employees should be “empowered” to help the company cut costs.

    @ Mark – I really love the word frugal, and actually being frugal. Its something that I was somehow blessed with from birth. Im a lot more frugal than my parents which you wouldn’t expect, right?

    @ Kent – Once again I am inclined to agree with your devil’s advocate position. I strongly believe that feeling included and valued is worth a lot more than higher pay. It’s why I have left quite a few previous jobs. I like making my own way.
    And I like your business philosophies. You are the type of guy I would gladly work for.


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