Cost Cutting don’ts

At this time when the economy is struggling companies are looking for ways to cut costs.  It is easy to make decisions that seem to be in the company’s interest in the short term but are in fact to the detriment of the company’s long term survival. Today we are going to look at three areas of cost cutting that a company should avoid.

Firstly, manufacturing companies often delay replacing machinery in times of economic recession.  The problem is that machinery wears out with use and may break down unexpectedly.  It may take several months or longer to replace that piece of equipment so it is important to order it ahead of time. The company could lose significant sales while awaiting the replacement machinery.  In addition new equipment may be more efficient and cost effective and delaying purchase may allow your competitors to sell at prices lower than the company’s.

The second cost to avoid cutting is the updating of computer software.  Companies often think that software will run forever but it tends to degrade over time.  This may result in errors occurring while processing is taking place.  This could result in significant downtime or constant rerunning of the process.  A complete failure of course closes down the business. In addition failure to update software often results in the provider no longer supporting your version and if you encounter problems there is no help available.  Also fixes and updates put out by the provider often will not work on older versions.

Lastly, a company should never decide to cancel its insurance on, or to underinsure, its assets.  Companies often think that they can take a chance and do without insurance and hope that nothing happens.  The problem arises when something does happen and the company has no funds to replace its assets.  There is a simple rule that says that if you cannot afford to insure your assets then you definitely can’t afford a total loss. 

It may seem like a good idea to make these cost cuts but remember the cost of doing without can be significantly higher.  Never cut a cost if you know that you don’t have the funds to do a full replacement or if it may result in the possible closure of the business.