As the recession begins to bite ever more deeply, and fees and margins start to erode, the only way to keep from going into the red is to take cost out of the business — unless you’ve been smart enough to salt away piles of cash in the good times. Even if you have, it’s still prudent to start running a tight ship right now.

Most owners and directors haven’t faced this situation before, and those few that have agree that there is a “dark art” to taking out cost effectively without causing terminal damage.

The skill is in differentiating between ‘revenue inflating’ and ‘revenue deflating’ expenditure. Take a look at the management accounts of most recruitment companies; the spend falls into just a few distinct categories. In almost every case, the big one is ‘staff costs’. These usually include salaries, commissions, bonuses, National Insurance, pensions and training.

It really isn’t a smart move to slash commissions at this time, as sales staff are probably already feeling the pinch; but it might be a good time to change the bias to reward the behaviours you want to encourage.

An example might be to offer higher commission every time a placement is made at a new account or an extra bonus for selling retained business. These will need to be paid for by reducing commission for lower performers.

Do NOT cut out training whatever you do. Yes, review where the money is going and ensure that it is being spent appropriately, but remember
that these tough conditions are new to most of your consultants, and you owe it to them to equip them with the skills and tools to survive.

It might also be wise to spend a little on your own management training and development; you are probably feeling the strain and could do with some help. Take a good, hard look at non-fixed overheads; this is likely to be where the most can be saved.

Client and staff entertaining should be targeted and forensically analysed so that you are getting a return. Review all your suppliers’ contracts and ask them for a reduction, just like your clients are probably asking of you right now.

Leave no stone unturned — telephony, maintenance, office supplies, professional services, insurance; anybody who supplies you with anything
should come under scrutiny. You may even be able to tackle items like your rents and rates. If you are close to a break, renegotiate; there are great deals to be had if you have to move premises. Undertake a rates review; you might even get some money back.

The message is simple, put every single item under the spotlight. There are no sacred cows, and every cost must be up for review and possible
elimination. But make sure you only cut out fat and not muscle; when the downturn ends, it’s muscle that you’ll need.

TOP TIPS

• Adopt a ‘survival’ mentality. Your survival may actually depend on it
• Don’t take out costs that support or enhance the revenues, like training and commission
• Make sure YOU get to sign all the cheques for a while
• No sacred cows; everything is up for review
• Make sure your staff know you are acting to make the company stronger, not just penny pinching

John O’Sullivan
managing director, Elite Leaders