1. Check work orders and delivery forecast

Depending on GAAP rules for revenue recognition applicable to your business products must be delivered in order to be recognized as revenue.  A tuned up value chain, starting from your suppliers to your manufacturing operations and distribution will be fundamental to achieve this goal.  Make an in-depth review of your current work orders and delivery forecast and validate that there are no anticipated bottlenecks, then, evaluate options to accelerate production and delivery.

2. Make an exhaustive dive in Billings

Once items are delivered a simple step before recognizing revenue is to issue invoices.  In organizations with mature, automated systems this is straightforward.  If this is your case, please move to the next item.  If on the contrary your processes are not automated then add extra eyes to your billing process, make sure that all delivered items are promptly billed, and there is no back-up issuing or delivering bills.

3. Evaluate opportunities in Discretionary Spending

Discretionary spending includes items such as travel and entertainment, advertising and marketing, information systems, temporary labor, energy, and more.  With two full months before the end of the year this is the best time to tighten on expenses if your plan is at risk.  Savings in these and other categories can range between 5 and 50%, which depending on your industry may expand your margins by up to 1%.

4. Challenge your Sales team

While your sales team must have been working hard during the year, is there still opportunity to close the year with additional sales? are you fully leveraging all your sales incentives? are there still any undecided clients who may say “yes” with the right incentive? Find out sooner than later and take action!

5. Reach out to your suppliers

While it may be late to implement any cost-reduction engineering changes it is never too late to request straight price reduction.  Evaluate your supply chain for suppliers who have not delivered productivity this year and have your supply chain team contact them immediately.  Focus on suppliers whose costs have evidently come down this year, i.e.  products that are dependent on oil prices and commodities (metals, plastics, and others).  Set a goal, and just ask.

This list is not exhaustive and may not apply to all businesses and industries.  For additional recommendations or to request a rapid assessment please contact us.

Amid all this uncertainty, what can you do as a manager to prepare for a potential slowdown?

As mentioned in prior deliveries, anticipate!  On your financial equation there are two elements, one you can’t control: revenues, but there is another element that you can control: costs.

Cost are represented by several components: cost of goods or services sold, direct labor, sales, general and administrative (SG&A) costs, and other discretionary expenses.  Assuming that you are not planning to reduce headcount your focus will likely start on all other items.

A strong culture of continuous improvement and innovation will help you improve your production costs, reduce manufacturing floor-plan, increase up-time, shorten set-up times, minimize use of consumables, and achieve other factory-related productivity gains.

Next in your list will be your cost of goods sold.  Your commodity team will be instrumental in adjusting your COGS position.  In some cases, a candid conversation with your key suppliers will help you improve your cost base; in other situations, dual-sourcing and Request for Proposal events will be key levers that will help you achieve your goals.

Last to evaluate will be SG&A expenses (excluding labor).  In many industries this category will represent a significant opportunity and first in the list to reduce costs.  Categories such as travel, sales expenses, marketing expenses, consulting and other outside services, among other can be managed more quickly than any other spending buckets.

Where to start?

The answer is, it depends.  Rapid results are usually achieved in SG&A and other discretionary expenses.  Manufacturing and Production productivity initiatives may take longer to execute.  Naturally its always best to start with the biggest opportunity, which may vary by industry and by company.

For recommendations on how to start a cost reduction program you can review our summary presentation “Reduce expenses, five steps to implement a discretionary spending reduction program”  located in our Education Center.  You can also visit an abridged version in Slideshare.net.  For additional details please contact us at your convenience.

Part of the answer is in the hyper-connected nature of the world’s economies and financial markets.  In Greece situation, we are contemplating the potential default of €1.5 billion to the International Monetary Fund¹, which are due today June 30th.  An additional €25 billion to multiple creditors are due in the balance of 2015, mainly treasury bill holders, the European Central Bank, and the IMF.  A potential default by Greece would touch far more than just their economy.

Another element of the answer is described by the potential chain of events that would follow a default, which could include separation of Greece from the Eurozone, re-adoption and subsequent devaluation of the Drachma, inflation, and general unrest in the country.  Commerce with other nations would be affected, even tourism.  As these events unfold the investor confidence would significantly drop, not only in Greece’s financial market, but also in the European market and its ability to maintain an economically stable, integrated Union.

Yesterday’s market reaction was just an anticipation of the above.  The Dow Jones lost 348 points, S&P 500 lost 40. The investor confidence is impacted, risks increase and automatically adjust the value of financial instruments, including bonds, stocks, currency, even commodities.  The big question is, if Greece does indeed default, how would it affect your business?

Global corporations have, and are affected by international sales.  When foreign markets are affected US based corporations see this impact in their bottom line.  In meeting financial goals corporations will take measures to compensate for any negative impact, including cost reduction and discretionary spending rationalization.

If your business sells to global corporations it is possible that any cost reduction initiative may affect you directly, either through reduction or elimination of business, or just by generating pricing pressure.  If your business does not sell to corporations but to medium-size businesses you could still see an impact if your customers’ customers are large corporations.  Even if your business sells only to consumers a drop in our financial markets would affect you indirectly; your average consumer might reduce their spending and with that reduce your sales.  

What to do next?  anticipate!  In the same fashion as the investor community is anticipating the consequences of a Greece default you can anticipate the need for cost curtailment.  A few ideas include:

1. Evaluate your cost structure, assess where can costs be rationalized, what is optional, and what is critical for your business operations. Examine with detail your discretionary expenses.

2. Be ready to contact your key suppliers and request price concessions.  Describe the situation and seek support.

3. Explore alternative sources for your raw materials, goods, and services.  This may be a good opportunity to test the market for new suppliers.

4. Challenge your team to reduce operating costs.  If  you have manufacturing operations explore more efficient production methods.  If you deliver services, challenge the team to deliver more efficiently to your customers.

5. Diversify your customer base.  This may be a long-term project, but it is always a good business practice to have balanced sources of revenue.

6. Refresh your “What if” plan². 

In conclusion, could Greece affect your small business or start-up? the answer in many cases might be yes.  Can you prevent it? probably not, but you certainly can anticipate and proactively prepare for tough times.  Start today, develop a plan, and prioritize the actions that will best support the needs of your customers.

¹  WSJ.com

² “What if” plan is a set of scenarios describing risks, impact, mitigating actions, and contingencies.