Blog Post: In Tough Economic Times, the Expedient Budget Cut is not always the Proper Budget Cut

When revenues are shrinking, decision-makers often resort to bunker-mentality and short-term solutions when choosing how to reduce costs, rather than analyzing all the ramifications of their decisions so they can maintain long-term stability and growth.

For an example, let’s look to the government.  When available dollars for programs shrink, the government reacts as outlined above.  Money flows for social services, increased unemployment compensation, home-owner relief, etc., while dollars for economic development dry up.  Huh? 

When properly invested, providing funds to Economic Development Centers adds money to the government kitty.  Healthy businesses pay taxes.  Healthy businesses spend money with other local businesses (multiplier effect).   Not to mention healthy businesses hire employees to keep them (as well as the business owners) off unemployment and on track to pay their mortgages.  So cutting funds to effective Economic Development Centers means that instead of paying a portion of the social services out of revenues, the government continues to accumulate more debt to pay those bills.  Oh, and they also create a greater need for those social services from the owners and staff of failing businesses.

The same thing happens, but more subtly, with businesses.  For example, cuts in dollars and time spent on employee development have adverse long-term effects on businesses.  The cuts can be direct (training staff cut, budget dollars for outside training cut) or indirect (staff operating close to the bone so no time allocated for in-house training, priorities of management has moved away from long-term outlook to day-to-day operations, etc.).  However, the objectives for training are always to increase revenues or reduce costs.  For example the objective of customer service training is customer retention.  The objective of sales training is increased sales.  The objectives of workplace training are to increase productivity and reduce employee turnover. Therefore, eliminating employee development results in: fewer sales, higher costs of doing business and an erosion of the customer base.

There are many other examples of short term decisions that can result in making tough economic times worse.  However balancing the long-term needs of your business (ongoing strategic planning process) with financial limitations during difficult economic times is tough.  What are some of the challenges your business is having balancing your long-term strategic plan with declining revenues?  What are some of the areas you find yourself being forced to cut that you would like to find a way to maintain?  By sharing them here (in a general way), you just may get a suggestion or two that can help you both keep your costs low, while staying on your “strategic path”.  In fact, I’ll get the ball rolling.  Click here for one possible solution.

See you in my next post.