How to Manage Expenses During Economic Recovery

Dayton Business Journal - by Sonja Sherwood DBJ Contributor

There’s a moment in Steven Spielberg’s “Empire of the Sun,” a 1987 movie about coming of age during World War II, when John Malkovich’s character says to his young friend, “At the end and beginning of a war … we have to watch out for ourselves. In between, it’s like a country club. But you got to know how to keep your balance. Keep your balance and make the right friends because this war is definitely winding down.”

The beginning and ending of a recession is fraught with similar risk. Ramp up too soon, and you might end up holding the bag on excess inventory and staff. But play it too safe, and you might miss opportunities. The key to being nimble is to be alert, get positioned, and wherever possible, convert fixed costs to variable costs.

“The general notion is … how can I hedge against what can happen in the market?” said Stephen Lis, a partner with the accounting firm KPMG, where he is U.S. leader for performance and technology services. “I think businesses are trying to build for potential growth but being conservative and doing it in a way so that it doesn’t bring on a lot of fixed costs, so that if things move more slowly than expected they’ve got flexibility.”

Larry Herrmann, president of Dayton-based Paradigm Management Corp. — a business consulting firm — said businesses need to take a hard look at the realities of their business and industry before they make any quick decisions that will affect the company.

“Businesses need to really be true to what is really happening within their industry and their market to determine whether or not things really are getting better,” Herrmann said.

If after evaluating prospects, companies determine they are in a position to grow and move on from the recession, they need to take it slow and focus on their strengths, he said.

“Too many companies start to go off in multiple directions and start chasing opportunities, and they become fractured,” Herrmann said. “Companies should stay focused, have a business plan in place, and stay focused on the plan.”

If everything is in alignment, the first step to moving on is focusing on good investments for the company. Lis recommends business owners take a hard look at staffing and technology.

First, when it comes to staffing, businesses should consider taking advantage of the many temp agencies, outsourcing services and contractors available, rather than hire permanent workers they may need to let go later if they encounter a double-dip recession.

The market for contract workers has moved beyond just clerical functions to everything from a creative talent to a human resources professional, to a high-level finance officer, who can be “leased” from firms.

“The outsourcing market has evolved in a way that they’re looking at companies in this situation saying not only can we give you the ability to get lower cost structure, but we can … make it transaction- and demand-based,” Lis said.

Another model is the use of software applications over the Internet, he said.

“It gives organizations flexibility,” Lis said.

Gene Marks, a business management columnist for various national publications, advises companies use free or inexpensive tools on the Internet to combine outsourced people working remotely with ways to make them more productive.

Employers can hire subcontractors from anywhere in the country for tasks such as administrative or creative work or collection calling by using freelancer job sites like eLance.com, Guru.com and CraigsList.com.

Once hired, these employees can then be linked into an old computer, safely separate from any sensitive data, through a number of inexpensive Web-based remote access tools such as GoToMyPC.com or LogMeIn.com.

“I used to have five people in Bala Cynwyd (Pa.) and now I have three servers in my basement and everyone works from home,” Marks said.

Desktop sharing tools from providers such as Glance.net or CrossLoop.com allow people using a computer in remote location to observe what’s on your screen, such as a PowerPoint presentation, or for you to control their screen, which can be useful if your remote worker is having a technical problem.

You can also use the Internet as an inexpensive calling plan, using services like Skype.com.Marks uses FreeConferenceCall.com.

“It works, you get charged at your normal rates when you call the number, and you can have up to 100 people on for up to six hours,” he said.

Another way to keep expenses in line is to shop smart when looking to upgrade or replace equipment. Marks recommends using Froogle.com, a Google service that will find the best price for a specific product anywhere it’s being sold on the Internet. Become.com is a community site where customers review products. And RetailMeNot.com aggregates coupons, discounts or other free offers collected from 40,000 Web sites.

And it doesn’t hurt to sit down with a professional and map out a strategic plan.

“The beauty of working with a CPA is that they have hundreds of small businesses that they work with, so what may be working for one client will work for another client, and they’ve gone through a lot of experiences working with different companies,” said Mark Koziel, director of specialized communities and firm practice management for the American Institute of Certified Public Accountants.

At the end of the day, no amount of cost cutting can substitute for sound long-term strategies for financing, succession and sales, regardless of the state of the economy.

Sonja Sherwood writes for the Philadelphia Business Journal, a sister paper to the Dayton Business Journal. Mary Beth Lehman contributed to this article. E-mail dayton@bizjournals.com. For a reprint of this article visit: How to Manage Expenses During Economic Recovery