Attack of the Penny Savers

Small companies don their creative cost-cutting caps to shore up cash reserves and ride out the downturn.

Another couple of thousand dollars in monthly savings comes from Joe Money’s decision to cut loose most of the uniform services that each week picked up the uniforms the company’s 85 mechanics had worn that week and delivered freshly laundered ones. The company purchased its own shirts for the mechanics, told them to wear jeans, and provided a small clothing allowance in exchange for the employees doing the laundry themselves.

Other savings have come on the IT front. For one, the company has consolidated its computer servers. “We had developed server sprawl,” says Box. That comes from adding servers to handle the load as existing servers near their capacity; over time, they become redundant to some extent. Reorganizing all the server functions into a more efficient setup has allowed Joe Money to retire two older servers that cost an average of $1,000 a month in repairs. The more-efficient servers also use less electricity.

Box also directed that when a workstation or desktop computer fails, it be stripped down for parts instead of junked. There is now an inventory of spare parts, and when new computers are needed they are assembled from the parts rather than bought new. “We haven’t had to buy anything at all in some time,” he says.

A bigger coup came from renegotiating the company’s general liability and umbrella insurance premiums, based on its now-lower revenue, with $20,000 falling to the bottom line.

The Bull by the Horns

Not all cost-saving activities are emanating from the C-suite. In a recent survey by the Institute of Management Accountants and Ajilon Finance, 59% of the 600 participating accounting and finance professionals said they are spending more time on cost-cutting initiatives as a result of the financial crisis.

IMA’s chairman-elect, John Brausch, is a vice president and property-operations controller at Edens & Avant, a developer and owner of 134 shopping centers on the East Coast. There, an aggressive program to reduce bad-debt expense was entirely devised and implemented by the company’s accounting organization, he says.

The program involves several elements. One is training property managers on making collections from shopping-center tenants, who pay rent and in some cases a portion of their sales above a certain threshold, as well as a share of the expenses for maintaining the center.

Another aspect of the program is an increase, “by a factor of three or four,” says Brausch, in meetings with both property managers and with tenants. Personal contact with the tenants is vital in these days of regular bankruptcies and liquidations by retail companies that rent space at malls. “Some of them are leaving in the middle of the night,” he says. “We want to make sure they remember us when writing their checks early on rather than when they’re dividing what’s left among their creditors.”

A particular urgency is attached to getting the payments for shopping-center upkeep, which are billed to tenants at year-end. Some real estate companies might drag out the process of collecting those funds for six months or more, Brausch claims, but Edens & Avant now makes sure to get it done in three months.

The accounting department also pushed through a quarterly bonus for property managers who are in the top quartile in extracting cash flow from tenants. This, along with the other steps, has “really impacted our ‘days to cash’ metric — how long it takes to turn billings into cash,” Brausch says, though he declines to quantify the results of the bad-debt-expense program.

Meanwhile, Edens & Avant is saving 15% to 20% off its expenses for property operations this year by moving to regional and systemwide contracts for services such as security, landscaping, lighting, porterage, and cleaning. Previously, such services were arranged on a property-to-property basis.

Qualities of Leadership

Innovation from the ranks is a hallmark of companies that are cost leaders — but something that too few strive for, according to Jonathan Schiff, an independent consultant to CFOs and a professor at Fairleigh Dickinson University. “If you look at the most recent studies from Harvard, most of the best innovations don’t come from leaders, except odd ducks like [Apple Computer's] Steve Jobs or [Oracle's] Larry Ellison,” says Schiff.

Many top executives, he adds, make the mistake of issuing cost-reduction mandates and then not paying much attention to how they’re being addressed down through the organization. “You can’t be an aloof leader and expect people to really dig deep — analytically, intellectually, and emotionally — to achieve cost leadership.”

The most sophisticated cost leadership is rarely made public, Schiff says, because it directly relates to competitive advantage. For example, he notes, auto companies tear down their competitors’ vehicles to find out, say, how cabin-noise level was lowered and estimate the cost of achieving that. The resulting competitive insight can have dramatic cost impacts that aren’t visible to company outsiders, Schiff says.

 

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