When facing a cash crunch, a small business may be tempted to make across-the-board cuts. In the name of survival, some companies slash marketing and IT budgets, cut staff and discontinue expansion plans.
But such heavy-handed measures can backfire: Get rid of enough employees and you’ll find yourself short-staffed when the economy rebounds. Cut too deep today and you risk coming up short tomorrow.
That’s why smart companies like Saladworks take a more disciplined, selective approach to cash management. When sales began to slow, the Conshohocken, Pennsylvania-based restaurant chain took the opportunity to invest in software and revise policies that save money while positioning the company for success.
According to Saladworks founder and CEO John Scardapane, the organization “cannot operate the way it did two or three years ago. “ But instead of simply cutting all areas of spending, it took a deep dive into its cash reporting and budgeting practices, made some key changes and saved money without hacking itself into a corner.
Shaving Food and Labor Costs
In the past, monthly budgets helped Saladworks store managers plan their cash flow each week. The forecasts were developed yearly, and then broken down by month and week. “But in today’s economy,” says Scardapane, “you have to make sure you have the right staff on and not keep too much inventory.”
Today the reports are generated monthly so managers can better see what resources they’ll need day-to-day. The new method is paying off, says Scardapane. “We shaved about 5% to 7% off food and labor costs.”
Another investment that improved cash flow at Saladworks: a laser-like focus on scheduling shifts. Store managers used to schedule staff manually, says Scardapane. Now they use point-of-sale software to schedule. “They used to make the same schedule week after week. But now we know where we are productive and where we are not.” The increased efficiency saves cash.
Additionally, Saladworks renegotiated numerous contacts. “If we have a lease we went back to the landlord and asked for lower base rent and an agreement where, if business picks up, we will pay more,” says Scardapane. “We called the insurance companies and asked to renegotiate contracts; same with food purveyors and manufacturers.” Those efforts, says Scardapane, took 10% off the cost of goods sold.
We asked Wharton’s Robert Chalfin for additional cash-management tips. “Negotiate with your bank,” says Chalfin, author of Selling Your IT Business: Valuation, Finding the Right Buyer, and Negotiating the Deal (Wiley & Sons, Inc.). “You may be able to consolidate accounts, lower interest rates and eliminate fees on loans and accounts.”
Chalfin recommends renegotiating telephone fees and service contracts, too.
Bottom line: Bold small businesses can use the current economy as an opportunity to fine-tune cash management polices, become more disciplined and efficient, and even gain an advantage over their less-bold, inclined-to-hold competitors.