Expense Reduction Opportunities
CFOs, controllers, business owners, and others interested in expense reduction opportunities gathered to discuss alternative approaches to reducing expenses and improving earnings. Mike LaLonde, owner of Accountants Connection, opened the Roundtable discussion with a presentation explaining alternative approaches to expense reduction opportunities, potential areas of savings, methods of achieving savings, external resources, reaction of management and stakeholders, and other considerations.
Benchmarking
From a management perspective, internal benchmarking and establishing metrics are important when constraints are the issue. Getting the support of top management and buy-in from all internal parties with an interest or stake in the cost reduction area is imperative, as many reductions may be seen as a threat or nuisance. It is important to follow up and communicate changes on an ongoing basis. When setting metrics, justification of the costs should be considered. For example, in marketing metrics, evaluate the cost of a trade show against the leads and new business opportunities. Other suggested areas to benchmark are phone bills and merchant card processing fees.
Tax Credits
Research & Experimentation tax credits, property tax credits, and energy deductions are significant opportunities for savings. If applicable, the savings can be substantial and should be thoroughly explored as part of any expense reduction program.
Vendors
Several attendees have annual meetings with vendors to assess price and technology changes. Keeping an eye on all vendor relationships was advised, and seeking multiple quotes is a good way to spot check the competitiveness of the incumbent vendors.
Freight
Freight was identified as an area for significant potential savings. Step out of habit and re-think and challenge what vendors you are using and why. All courier/freight services are negotiable, and asking for a discount is an option. Properly classifying types of shipments by class codes and other characteristics can reduce costs.
Healthcare
Healthcare, often a primary expense category for CFOs, is an area where many have attempted to contain costs. Several attendees have moved to a high deductible plan, one noting they have saved 20 percent and up to $200 per employee. It was noted the key factor in making these decisions is employee concerns. Educating employees on the plan options and helping them to be better consumers of healthcare best address their concerns. Managing the plan by breaking out costs and examining the feasibility of self-insurance were suggested as options, as well as self-insurance by large employee groups, higher deductibles, and forming an employee group to regularly tap employees for cost cutting ideas were also discussed.
PEOs
PEOs, or employee leasing, is an option with several participants expressing words of caution on accountability, detail, and the type of insurance they offer. One attendee noted the PEO's cost savings analysis might be less than credible. Another said there are more PEOs than ever out there, and high turnover in the industry.
401(k) Plans
401(k) matching is often the first cut made when cutting expenses. This option has no impact on your employees' current incomes.
Utilities
Utilities, such as electric and gas, can be bid. Considering how you use your utilities can also reduce utility expenses. One example contributed by an attendee using machinery that required significant energy to bring it to temperature, was that it was far more efficient to shift to a 4 day, 2-shift production schedule, eliminating several cooling and heating periods. Another attendee suggested using natural resources, such as wind turbines. There are also tax incentives now available for insulation, lighting, heating, and cooling efficiencies, etc. Another suggestion was to buy futures, outsourcing beyond "brand name" utility suppliers. Requesting the utility supplier install separate meters for sewer and water made a big difference if you use significant amounts of water in your processing or have extensive sprinkler systems.
Cellphones
Cellphones/Voice Over IP is an area to take a close look at when reducing expenses. While quality was noted to be key, one suggestion was to investigate an overall plan with corporate minutes as opposed to individual plans. Depending on the range of your business, international calls can be separated and applied when used instead of overall coverage.
Fuel
For some businesses, the rising cost of fuel has made rental cars a better choice than reimbursing for mileage on individual vehicles.
Paperless
Going paperless has several cost saving implications. Beyond the savings in storage and shipping, one attendee has reduced costs with direct deposit, electronic delivery of checks, and having many of the HR paperwork put online and asking employees to update forms. Another attendee outsources the HR Department.
Change in Payroll
An additional thought in the payroll area was to reduce the number of pay periods from bi-weekly to monthly, or weekly to bi-weekly, thereby reducing processing costs.
Purchasing Alternatives
Other attendee suggestions were to buy some computer equipment at Microcenter rather than online, saving $100 per flat screen. Just say "no" to some expenses. "Stop doing things and see if anyone notices." Charge expenses back to units or departments and they will take a very hard look at their expenses. eBay is a great resource for non-core items.
Expenses Worth Keeping
The option of reducing expenses in all areas may not be the right decision. For example, spending more on your website may result in a greater business return. Also, make sure you evalute any relevant non-financial considerations when doing your analysis.
