How did SMBs reduce costs during the sharp economic downturn caused by COVID-19?

How did SMBs reduce costs during the sharp economic downturn caused by COVID-19?

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Strict COVID-19 quarantine measures in Kansas City stifled the flow of money. Consumer spending went down, and so did the production of many goods and services. However, as of this writing, the state government is slowly easing restrictions. The businesses that survived are the ones that are beginning to revitalize the economy.

SMBs that withstood the quarantine did so in large part by drastically reducing costs. Here are some of the strategies they employed:

Employers asked their staff to tighten their belts with them

Managers and union representatives discussed financial projections and came up with strategies for business survival. Some ideas they implemented include:

  • Temporarily eliminating employee benefits that are not mandated by the government. If they provided free meals to their staff prior to the pandemic, then they cut back on that.
  • Reducing salaries. Management cut pay in their organizations. To make this more palatable, executives imposed the largest salary deductions upon themselves. As early as March, Disney executive chairman Bob Iger forwent his salary, and many executives took sizable pay cuts.
  • Shortening work hours by rotating shifts. If hourly rates couldn’t be reduced (usually because of minimum wage restrictions), pay was decreased by lessening the number of hours staff could work. One of the common ways this was implemented was by rotating shifts. Instead of clocking in every day for the entire work week, an employee would instead come in for two days.
  • Having staff work from home. Employees used their own devices, electricity, and internet connections to render work.
  • Furloughing or laying off employees. Companies either asked employees to stop reporting for work until further notice or let them go completely.

They sought rent freeze and other extra-legal cost-cutting measures

Proactive business owners didn’t wait for the State of Missouri to compel lessors and banks to stop seeking payments. They renegotiated the terms of their agreements so they could weather the economic downturn.

If they’re renting office space but directed their staff to work remotely, then the lease for that space would be a huge money drain. They approached their landlords and asked to put their rent obligations on hold until Kansas City fully lifted COVID-19 quarantine measures.

They also renegotiated amortization and debt payments with their banks so that payment schedules were paused and pushed to resume at a later date. This helped them avoid accruing compound interest at a time when income is low.

They focused on activities that were primary income drivers and either ceased or outsourced the rest

Quarantine measures shifted spending behaviors. This meant that some revenue streams dried up (such as with travel, tourism, hospitality, and dine-in food service) while others gushed harder (such as with eCommerce and streaming subscriptions). The same phenomenon also happened in companies with multiple offerings. Prioritizing the ones that contributed more to the bottom line meant investing less in those that no longer did so.

Further examination of cash flows also revealed where companies were losing money. To illustrate, non-IT companies found that they were better off outsourcing IT tasks to managed IT services providers rather than having in-house staff.

Companies across Kansas City cut IT costs and gain great value by partnering with Umbrella. To learn more about how outsourcing your IT would benefit your business, schedule a consultation today.

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