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Top Expense Management Tips During a Crisis

Top Expense Management Tips During a Crisis

March 30, 2023

Proper financial management becomes increasingly essential during times of economic disruption and crisis. As a small business owner, you’re not only well qualified to understand the underlying drivers of your revenues and expenses, you may also have the flexibility to control them and make course corrections as situations evolve.

Ways to Reduce Overhead

Large-scale crises with far-reaching economic impacts are thankfully rare, but may be met with equally unique opportunities for you to find capital relief.

Landlords & Property Managers

Carefully review lease agreements for clauses related to force majeure closures, cessation of landlord services, government interventions, property condemnation, or other major disruptions. Given the shared impact of a major disruption, most landlords should be reasonable. Try to forecast the short, medium and long-term impact of a disruption to your business. Be direct in your ask and flexible in your negotiations recognizing there are levels of assistance—from lease abatement to deferment to reduction—all of which can be used to bridge payment gaps. Business insurance policies should have language pertaining to major disruptions and their eligibility for claim submission.

Vendors & Service Providers

Proactive communication with key vendors and service providers can offer financial relief during disruptions. You may be able to negotiate longer payment terms (e.g., Net 45 payments vs. Net 30) to normalize expenses, as well as reduce some of the services you consume (e.g., reducing office cable/internet package).

Government Assistance Programs

Local, state, and national stimulus packages, when offered, can provide additional economic relief. Leverage your local business relationships (banks, accountants, attorneys) as well as small-business associations and chambers of commerce to stay abreast of government assistance programs.  

Your Own Self-Governance

As a small business owner, you ultimately control expense management by overseeing the financial actions of your organization. Having a budget allows you to track critical financial metrics and determine when to make changes. Disciplined project management can keep you on track toward goals, while communicating them to your employees can drive alignment with your initiatives and clearly define success.

Ways to Reduce Staffing Expenses

Human capital expenses may be the last place you want to make cuts, not only because of the significant value your employees bring to your business and bottom line, but also because of the disruption it can cause in their lives. However, there are ways to reduce expenses that can strike a balance between the needs of your business and the impact on your staff.

Short Duration Tactics

  • Cut T&E: You can quickly cut business travel and client entertainment, but keep an eye on balancing cost savings and the effect it may have on maintaining and deepening client relationships.
  • Freeze Hiring: Postpone any increases in headcount, but consider backfilling essential roles to maintain service standards.
  • Reduce Part-Time Labor: Part-time or contingent labor tend to be the most flexible positions to reduce or cut, but diligent capacity planning is critical to ensure existing staff doesn’t become overwhelmed.
  • Reduce Shifts: Decreasing non-exempt employee hours can provide immediate cost savings while providing an easy mechanism to staff up once revenue levels return. 
  • Pause Retirement Plans: While requiring amendments to plan documents, consider a temporary cessation of retirement plan funding to provide greater expense management.  
  • Freeze Raises & Bonuses: Suspending merit raises and/or businesses can provide increased expense flexibility for up to one year, but risks decreased employee morale if used too long.
  • Defer Compensation: Geared towards highly-compensated and senior employees, you can increase cash flow by offering key staff compensation deferment for tax purposes.

Long-Duration Tactics

  • Use Furloughs: Geared towards non-exempt employees, temporary unpaid leaves can quickly manage weekly employee expenses.
  • Reduce Salary & Benefits: Explore both focused and broad-based salary and benefits reductions, but keep in mind management and senior leadership should be targeted before other employees to show solidarity. In addition to or in lieu of decreasing the employee benefits package, you can shift more of the participant cost onto the employee. 
  • Offer Voluntary Retirement: Extend voluntary retirement packages, including early-commenced and/or subsidized benefits, to tenured employees.
  • Reduce Staff: Decreasing headcount provides the ultimate human-capital expense-management tool and should only be considered as a last resort, given both the employee and client service impacts. 

We can always set up some time to discuss further if you have any questions. Please do not hesitate to reach out.

For discussion purposes only and in no way represents legal or tax advice. For advice regarding your specific circumstances, the services of an appropriate legal or tax advisor should be sought.