Which costs to cut to secure your business future
- Cost-cutting demands a sustainable approach to operational efficiency and employee wellbeing
- Efficient management of working capital supports a renewed focus on immediate, medium and long-term impact
- Smart outsourcing with trusted partners sharpens expertise across critical operations
As the world waits on COVID-19 vaccines, business leaders are managing through a global depression with both the US and European economies continuing to threaten the Asian export market. This is the type of economic downturn that traditionally results in retrenching employees as an immediate cost-cutting measure.
However, the global and personal impact of the pandemic has driven a people-first approach to managing through this unprecedented economic downturn; every business has customers and stakeholders watching how they respond to market challenges to balance people and profit.
Leaders ready to do things differently can look to sustainable cost-cutting strategies to guide your organisation through change with reduced risk:
- Smart management of working capital
- Employee stock option plans
- Outsourcing payroll or improving processes
- Outsourcing finance, tax and accounting services
- Leverage industry grants and economic stimulus
By prioritising what drives value for your organisation in the long-term, sustainable cost-cutting strategies focus on positioning the company to survive now and to thrive through an economic recovery.
01 Smart management of working capital
Cash flow is critical in a crisis, and minimising investment in working capital — what we spend to get the job done and keep business running — is critical.
2020 has put the focus back on operational efficiencies — and effective working capital management. Growth and development may be temporarily on the backburner, but this is the time to get the business-critical functions of your organisation right. Containing costs to minimise reliance on lenders will position your business to recover strongly as economic conditions bounce back from an unexpected 2020.
A renewed interest in working capital demands a critical assessment of the entire sales pipeline; inventory levels, distribution points, and product viability are all on the table.
Smart leaders are looking at strategies, including:
- proactive invoicing — offering customer incentives like early payment discounts
- cash management — paying suppliers when they’re due, not before
- inventory — lowering stock thresholds to reduce risk, but maintain agreed customer service levels
- reducing overheads by outsourcing backend services.
Next steps: Assess your working capital costs and financial forecasts to confirm what you can bring inhouse and which backend services are smarter to outsource.
02 Outsource your payroll or improve your processes
Outsourcing backend services like payroll has a poor reputation as being the inevitable result of retrenchment, or a sign of instability. However, payroll processes are crucial to managing through an economic downturn; smooth payroll processes drive employee satisfaction, and it’s likely your HR department is busy by managing people issues in a pandemic.
There two ways to outsource payroll to streamline operations:
- completely outsourcing the payroll function and services to an external provider
- using a cloud-based SaaS HR management system (“HRMS”) — freeing up HR from administrative tasks by empowering automatic and self-service tasks.
The approach can also unlock unexpected benefits, and expose the significant opportunity cost of not outsourcing key functions; boosting visibility, streamlining internal processes, and staying compliant across multi-country payroll and tax conditions.
Each model can benefit their corporate objectives while managing costs, cross border functionality, and personal data privacy of employees.
Next steps: Check if payroll outsourcing or SAAS for payroll management suits your business needs.
03 Outsource backend financial support across accounting and tax planning
In an economic downturn, every organisation focuses on the very core of the business; the what and the why. It’s never been more important to have experts aligning your financial processes and procedures with your organisational goals. Your organisation can seek financial help with everything from bookkeeping to redundancy strategies to ensure the business runs smoothly while internal staff focus on business survival and generating revenue.
By choosing a financial services partner equipped to manage your operational and strategic finances and accounting, businesses bring external expertise and new perspectives on long-term accounting and tax planning.
Support for tax planning may include:
- location planning for tax offset maximisation
- streamlining cross-border transactions to simplify complex deals
- minimising and deferring payments while staying fully compliant
- strategic planning to leverage falling asset values.
An additional unexpected benefit of external support across accounting, tax and financial reporting is the establishment of effective data reporting, analysis and forecasting. This data helps to inform planning, working capital decisions, and support for your enterprise to apply for eligible economic grants and stimulus packages and ensure the governance is in place to stay compliant with funding conditions.
Next steps: Put all your financial operations on the table for expert review. Focus internal skills on long-term planning and get external support for tax, accounting and reporting.
04 Reward people with employee stock option plans
If you don’t have cash on hand but want to reward and retain employees look at an Employee Stock Options Plans (“ESOPs”).
As companies like Slack and Atlassian lead the way in remote-first workforces, competition for skilled employees demands a different way of approaching the employee experience. Employee equity plans have been popular during the COVID-19 pandemic as companies look for a different approach to boost employee engagement, maintain productivity, and keep intellectual property.
Create a purpose-built plan to fit your organisation and employee needs and create a sense of ownership to keep the best and brightest employed in the long-term. Your new stock plan — or updates to your current plan — should:
- keep liquidity by creating long-term incentives to replace short-term cash bonus or salary increase expectations.
- reward high performance and employees who increase operational efficiency during an economic downturn.
- use performance metrics relevant to your organisation — look at total shareholder returns (“TSR”), client retention, and return on equity (“ROE”) and adapt goals to conditions.
- drive growth by incentivising staff towards a common business goal.
Next steps: Look for an external provider who can manage your Hong Kong-based or global ESOP and keep the workforce focused on revenue-generating initiatives.
05 Access government and industry grants and economic stimulus
Since the unprecedented challenges of COVID-19, Asian markets have seen a new range of government, industry grants and other economic stimulus packages.
If your organisation operates across borders or is open to funding to expand operations, you may be eligible for funding support.
Support from government or industry grants demands stringent corporate governance; you may need a guide to accessing, implementing and leveraging new opportunities across borders.
Next steps: Get expert help to find Hong Kong support for enterprise and cross-border funding opportunities, apply for funding, and to stay compliant across jurisdictions.
How sustainable is your cost-cutting in 2021?
Cost-cutting strategies to manage through an economic downturn look different today to the Global Financial Crisis or the dot.com crash; leaders must balance short-term needs with long-term business survival.
It is no longer enough to reduce headcounts, freeze salaries, and scramble to maintain productivity. Smart organisations are taking a new approach to old problems: keeping employees committed with stock options over pay rises, looking for market and industry support, and getting smarter about the benefits of outsourcing.
The right outsourcing partnerships are key; who you choose to support your business can define your organisation and your leadership. Look for providers that support your workforce with administrative and financial expertise that drives business recovery.
Related Business Insights
10 Nov 2022
A strategic approach to regulatory compliance can help your business keep up with changes to local requirements whi …READ MORE
10 Jun 2022
Considering consolidating your multinational taxes with a business tax advisory service? Here’s what you need to …READ MORE
18 Mar 2022
Hong Kong budget focus on investing in infrastructure and promoting the development of industries in their bid to o …READ MORE