A Crash Course in Cost Cutting
-by Jason Giaimo
As published by the Institute of Management Accountants, Alaska Chapter (7/15/03), and by the  Alaska
Journal of Commerce


Warning: The complacent may find this article threatening or offensive!  

From the mom & pop corner store to the multi-million dollar corporation, all companies want to reduce their
expenses.  Why?  Simple…reductions in costs generally drop straight to the bottom line and result in higher
profits to the owners.  Having consulted for and worked in accounting operations for a number of companies
over the last ten years in positions from staff accountant up through Controller/CFO, I can say with the absolute
certainty of an insider that most companies leave vast amounts of money “on the table” so-to-speak.  Not your
company?  Don’t be so sure.  

There are many, many ways to reduce company expenses.  The following article lists a few of the common
expense reduction “pay zones” that I have found, plus some common productivity killers.

1)
Kill the web.  Disconnect Internet Access from all but a few computers in your company.  Sound radical?  In
most jobs, you really don’t need access at all, and employees surfing the net during business hours waste
thousands of hours of productive time.  A December, 2002 study by the University of Maryland found that
employees spend an average of 6.5 hours/week at work surfing the web for non-business reasons.  Everyone
has a few old computers sitting around, so create an “internet station” for employees use instead…and pull the
plug on corporate web surfing.

2)
Get lean.  Keep your staffing levels lean -- then cut 10% more. If “necessity is the mother of creation,” then
“time pressure is the mother of efficiency.”  With a bit of pressure to jumpstart the creative process, you will be
amazed at how many superfluous tasks and unread reports you will find.

3)
Shop Smart (or don’t shop at all). The cost of medical insurance has been rising at double-digit rates over
the last four years (13% in 2002 according to SmartMoney.com) and it is fast become the bane of corporate
America. Shop around for lower cost company plans at least on a biannual basis.  Remember, you offer
medical insurance solely to attract good employees – but no law mandates that you offer health benefits at all
(except for Workers Comp).  A more aggressive proposal would be to shift the responsibility of caring for the
employee’s family back to the employee…where (in a capitalist economy) it probably belongs anyway. If you
choose this approach, you may want to offer a yearly cash bonus to ease this transition (and to prevent a mass
exodus from your company!)  In direct contrast to conventional wisdom, I have found that individual medical
insurance rates are NOT prohibitively expensive.  Medical insurance for my family of four currently costs us
$105/month, with decent insurance coverage (80/20, $2500 deductible) for a 40 yr old with a family of four
starting around $354/mo.  Dozens of plans and providers are listed on the various insurance websites such as
“Insure.com.”   

4)
Sever the Severance.  Severance packages?  You can probably guess what I think of these!  Although nice to
receive, they add millions to the costs of business and erode the competitiveness of the company.  Wouldn’t it
make more sense to distribute some of that money instead to the remaining employees as bonuses, or to
reinvest it in new projects?  I have seen companies pay six-figure executives full salary for 1 year as severance
-- what a disservice to the shareholders!  Think of it this way; if you had a family-run company with 5 employees
(i.e. if it were your money), how much severance would you offer?  

5)
Say “Bon Voyage” to the Corporate Travel Agent (or at least take a hard look at their rates).  It is a standard
industry joke that the “Corporate Rate” is significantly higher than the market rate.  I have found this to be
absolutely true, and I once saved a client $800,000 annually by exposing it.  It’s tough to beat Travelocity or
Hotwire - if your Travel Agent can do it, fine. I once questioned the absurd “corporate rates” my client had been
paying, and the company travel agent told me, “Our focus is on building relationships with our clients” -- to
which I replied, “Sorry, my focus is on increasing my client’s profits.” I got rid of them and saved the client
almost a million dollars annually. More generally, it is critical to know the market price of the different goods and
services you use.  Mandate that your employees periodically shop around for better deals, drive a hard bargain
and periodically tell your vendors that you are considering going to their competitor. You will be amazed at how
flexible their “fixed price” becomes.


6)  
Get the cash!  You earned it…now collect it!  Are you giving interest free loans to your customers?  More
specifically, what is your Receivables Turnover Ratio?  If you don’t know…it is probably not very good.  Before
you conclude that this is one of those mind numbing arcane accounting formulas that the pocket-protector
brigade talk about at dinner parties…(we do!) just take your sales on credit for the month and divide it by the
average amount owed to you (net credit sales/average receivables).  This will show how efficient your collection
process is.  More importantly, the longer money goes uncollected, the better the chance you won’t collect it at
all.  Set a strict due date 20 days out (or as short as you can get away with) and ensure your collections person
calls the customer on the 21st day if they haven’t paid.    

In addition to
“Jason’s Big Six” cost savings techniques listed above, there are countless more ways you can
reduce expenses while improving the efficiency of your company. It is also likely that your employees already
know what at least some of them are…just ask them!  In my experience, these common sense principles are
entirely uncommon in practice, and even more so in larger companies.  If you treat company funds as if they
were your own, you will become your own cost-cutting expert.


Jason Giaimo is President of Net Gain Business Consultants. He is an Interim Controller and freelance
Accounting Consultant, and can be reached at:  jasong@netgainconsultants.com (www.netgainconsultants.
com) or by phone at (415) 722-9674
· Interim Controller, CFO, Accountant             · 1 to 12+ month projects              · Part-time or Full-Time
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· Financial Modeling Accounting                       · A/R, A/P, Fixed Assets, GL         · Bank & Account Reconciliation
· Cash Management, Banking, Collection          · Technology / Start-up specialist   · Accounting System Conversions
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