Which costs to cut to secure your business’ future
- Cost-cuttingdemands strategies that adopt a sustainable approach to operational efficiency and employee wellbeing
- Efficient management of working capital supports a renewed focus onthe immediate, medium, and long-term impact
- Smart outsourcing with trusted partners sharpens expertise across critical operations
After experiencing a slowdown in recent years, both the US and European economies have had an impact on the Asian export market, contributing to its export decline in 2023. This is the type of economic downturn that traditionally results in retrenching employees as an immediate cost-cutting measure.
However, the global trend has driven a people-first approach to managing through this unprecedented 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 for guiding their companies through change with reduced risk in 2024:
- Smart management of working capital
- Outsourcing payroll or improving processes
- Outsourcing finance, tax,and accounting services
- Administering Employee stock option plans
- 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 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 the business running — is vital.
In 2023, there has been a shift in focus towards operational efficiencies, and effective working capital management. Growth and development may be temporarily on the back burner, 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 a slowdown in 2023.
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 for cost-cutting, 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 butmaintain 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 in–house 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 or slowdown. Having a smooth payroll process drives employee satisfaction, increases employee morale and reduces the risks of payroll legislative penalties,
There are 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”) — this freesup HR from administrative tasks by empowering automatic and self-service tasks.
Outsourcing your full payroll function reduces HR management intervention, granting flexibility for other in-house duties such as growing the team and business. It is especially advantageous for global expansion, ensuring lean and effective payroll operations team that is in compliance with local regulations.
As payroll requires numerous tasks relating to the calculation and processing of employee salaries, benefits and deductions, having a cloud-based SaaS HR system further enhances the efficiency of payroll outsourcing. Your payroll tasks can now be executed remotely while your service provider handles the maintenance, technical support, and data backup. Additionally, outsourcing your payroll with a SaaS HR management system can often be more cost-effective compared to employing a dedicated HR professional to handle the same tasks.
Overall, these two approaches 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 the personal data privacy of employees.
Next steps: Find Boardroom’s payroll outsourcing services or SAAS solutions to streamline your payroll management according to 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. One core consideration in cost reduction is to consider outsourcing your accounting and bookkeeping services to ensure the business runs smoothly, while internal staff focuses 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 accounting functions may include:
- Ensuring your bookkeeping and accounting comply with local standards in Hong Kong
- Providing detailed insight into your business by performing thorough analysis on your P&L (Profit and Loss), EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) ratios
- Streamlining your operations by sorting accounting reports, consolidating group accounts, and offering payment support facilities for correct fund distribution and administration
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 Empower the team with employee stock option plans for talent retention
The business landscape of Hong Kong is highly competitive with intense demand for talented individuals. To thrive in this environment and achieve sustainable growth in a business, attracting and retaining talent have become the key. However, traditional methods of employee compensation may not always be feasible, especially when your cash flow is limited. If you don’t have cash on hand but want to reward and retain employees, consider an Employee Stock Options Plans (“ESOPs”).
As companies like Slack and Atlassian have led the way in remote-first workforces, competition for skilled employees demands a different way of approaching the employee experience. Unlocking benefits of employee equity plans have been increasingly popular in recent years as companies look for a different approach to boost employee engagement and maintain productivity.
Create a purpose-built plan to fit your organisation’s and employee’s 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 bonusesor 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
05 Access government and industry grants and economic stimulus
Going through the economic slowdown in 2023, Asian markets have seen a new range of government and industry grants and other economic stimulus packages. These initiatives include the Funding Scheme for Youth Entrepreneurship in the Guangdong-Hong Kong-Macao Greater Bay Area, which provides entrepreneurial support and incubation programmes to young entrepreneurs in Hong Kong, along with capital subsidies. Additionally, the SME Financing Guarantee Scheme enables smaller-sized enterprises to secure financing from lenders to meet their business requirements, while the Information Technology Development Matching Fund Scheme supports travel agents in implementing upgrades within the sector.
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 stay compliant across jurisdictions.
How sustainable is your cost-cutting in 2024?
Cost-cutting strategies to manage through an economic slowdown look different today from 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 rely on reducing headcounts, freezing salaries, and scrambling to maintain productivity to achieve cost-cutting goals. Smart organisations are taking new strategies and approaches 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.
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