1. Restructure your costs in line with new norms.
Business norms are rapidly changing, and this is opening up new opportunities to restructure costs. Garrett recommends going on the defense,reexamining spending in the following categories.
- Office space: If your employees have adapted well to working remotely, consider whether you need to return to the office at all — and how you could use those cost savings to make your company more competitive. TGG Accounting, which spends about 12% of its revenue on occupancy costs every month, is exploring this option right now. “If we’re in this work-from-home environment for another month or two and it’s going well, we’re not going to go back to the offices,” Garrett says. “We’re going to allocate some of those funds to building a stronger culture.”
- Employee benefits: A little-known provision in the CARES Act allows companies to contribute roughly $5,000 toward their employees’ student loans. The funds are non-taxable to the employee and deductible to the employer, so they offer huge financial benefits for both. Consider how you could start offering this benefit as part of your compensation packages.
Similarly, consider new models for medical benefits. For example, instead of paying a fixed percentage of your employees’ healthcare premiums, contribute a fixed dollar amount toward premiums and allow employees to choose the health insurance they want. The idea is to define the contribution instead of defining the benefit.
Finally, consider different ways to restructure your 401(k) benefits. Rather than offer, say, a 3% profit-sharing plan, offer a performance-based matching plan. That could mean contributions of $5,000 are matched with $1,000, while contributions of $10,000 are matched with $5,000. “That way, you’re really incentivizing an accountability culture,” says Garrett.
- IT: Think about how to use technology to make your business more efficient and effective. You might need to spend a little more on the front end to save more on the back end. Also, explore the potential cost savings of outsourcing your IT.
- Talent management: Take control of your team. Act decisively as a business owner to cut your under-performers and upgrade your talent. “This is not a time to hang on to under-performers,” says Garrett. “This is a time to move away from them.”
- Travel and entertainment: If your salespeople are successfully selling via Zoom, they might not need to travel or entertain clients like they did pre-crisis. “That is awesome for us as business owners because [meal and entertainment costs] used to be a bit of a black hole,” says Garrett. He suggests shifting that spending to achieve other business objectives, such as more competitive pricing.
- Sales budgets: Start measuring everything in sales. That doesn’t mean micromanaging your salespeople. It means changing commission structures and setting clear goals. Lower the overall cap for poor performers, and significantly increase the cap for high performers.
2. Reengineer processes to increase efficiency.
Take a critical eye to your processes in the interest of efficiency. For example, build “cookbook-style” processes into your accounting processes to increase efficiency and accuracy while decreasing your costs. Apply the same logic to your processes for inventory management, project management, purchasing and so on.
“When you really go in and clamp down on your processes, it increases accountability,” says Garrett. “High performers love it, because they love to be efficient and effective. And low performers can’t hide anymore.”
3. Build accountability across the company.
The unemployment pendulum has swung, and now is the time to focus on offense. This is a great opportunity to treat people fairly while demanding respect and fair treatment in return.
This starts with tightening your objective accountability metrics. Manage people based on outcomes instead of subjective metrics. Make sure every person knows the objective of their job, and make sure you hold them accountable to doing that job.
At the same time, get aggressive about hiring top talent away from your competitors. Find the people that can help you build a strong and sustainable business.
4. Upgrade your culture.
Remote working doesn’t have to kill your culture. In fact, it can strengthen it. The key is to create structures that increase communication, increase accountability and take good care of top players.
At TGG Accounting, Garrett focuses on lessons learned in the book “Endurance” about process, routine and purpose. Each morning, at 7:30 a.m., he leads an all-employee meeting via Zoom, and everyone in the company is required to attend via video. Different leaders have stepped up and to lead virtual challenges – like a midday push up challenge – and creating things like virtual happy hours at the end of the day. “We’ve got these new connection points we would have never had if we were working in an office instead working from home,” says Garrett. He’s encouraged employees to stay positive no matter what.
“Don’t let anybody be negative,” he says. “Don’t let them complain. You want positivity, which really creates opportunity for promotion based on performance.”
5. Automate and innovate.
Invest in technology that automates your processes and/or continually improves them. The idea is to become less dependent on people while increasing your margins. In addition, think about the margins or your products. “If you have different products, work to get better margins for the environment that we’re in now,” says Garrett. Better margins also come from the next tip, negotiating with vendors on decreasing the costs of everything.
6. Improve margins by negotiating everything.
Negotiate with your banker on your loan terms. Negotiate with your property owner on your lease. Negotiate with your vendors on pricing. Don’t hesitate to ask for purchasing discounts on bulk purchases or long-term contracts.
“These guys are going to be freaking out,” says Garrett. “Don’t be the one freaking out; be the one who’s aggressive, positive and confident. Go negotiate these terms so that you can get better overall profitability, because that leads to longer-term cash.”
7. Beef up sales.
To strengthen your sales, work on a few tasks at once:
- Track everything. Measure and monitor sales activity and results.
- Build up your team. Pay your winners, and cut those that are not performing. Hire away top talent by offering more job security and more upside potential.
- Beat competitors on price. If you have a strong balance sheet, you may be in the position to undercut your competitors. Focus on stealing market share in the short term and plan to increase your price in the long term.
- Focus on Customer Lifetime Value. Don’t think about the value of the customer today. Think about their value over the long term.
- Offer clients flexible payment terms. Think about putting a sliding pay scale into place. Give customers a discount for paying earlier but charge a premium for paying later. For example, give them a 10% discount for early pay, no discount for paying in 30 days, a 10% premium for paying in 60 days and a 20% premium for paying in 90 days.
- Offer a different pricing model. Borrow from the old HP playbook of giving away printers for free but charging high prices for ink. Provide something for free in exchange for longer-term contracts with slightly higher prices.
You must survive to thrive
Like Shackleton, business owners are facing a harsh winter ahead. Those who stay paralyzed by fear aren’t likely to make it through. But those who take decisive action have a good shot at survival.
After all, Garrett says, someone is going to come out of this crisis on the upside. “Winners win all the time,” he says. “In down markets, in up markets and in every market, winners win.”