Reducing Staff Costs to Save a Business from Receivership

Reducing costs seems like an obvious tactic to keep a business afloat yet, so few business owners do it properly. For many businesses, staff costs make up the majority of expenses so failing to keep them under control can quickly lead to unavoidable receivership. Reducing these costs, however, is a minefield.

Reducing Staff Numbers

Australia’s high standard of living and government employment regulations means it is one of the most expensive countries in the world to employ staff.

Many small and medium-sized business owners are reluctant to cut staff numbers so they will attempt to reduce other operating costs before staff. Quite often they have a personal relationship with staff and don’t want to hurt them or their families.

But some business owners will realise that by cutting a few staff they can save the jobs of many more. If a business can survive the hard times, they can go on to grow and employ more workers in the future.

Reducing Pay Conditions

Rather than reducing staff numbers some business will use natural attrition or ask staff to do more for less money. This is a long-term strategy, not suitable for a business already under significant pressure.

During the GFC many businesses around the world reduced their payroll bill by:

• Making staff redundant
• Reducing pay to award rates
• Moving staff from full-time to part-time hours
• Reducing number of days worked
• Freezing pay rises
• Abolishing bonuses 

While these strategies were used successfully by many businesses, it’s not always simple. If employees have an employment contract or are covered by an award, their conditions may not be changed. Before speaking to employees, owners should know exactly what they can and can’t do.

Inefficient Staff

Some staff work more efficiently than others. If they are on a salary, some workers feel there is little incentive to work fast and finish a report or project because they are paid the same regardless of how long it took.

To keep a close check on output, some businesses will switch from keeping an eye on the number of hours employees spend at work and concentrate on staff achievements. Reward for high output assists with creating an efficient workforce.

Some businesses may switch to using contractors and pay based on the completion of a job. This system allows companies to accurately track and assign costs to a job.

Timing

The main reason cutting costs don’t work to save a business is it’s undertaken too late. There is a point that no amount of cost-cutting can stave off receivership.

Some businesses will seek professional assistance too late. Their adviser will tell them that if they have been to see them six or even three months earlier, the business would have had a fighting chance. But once the debts have mounted up, there is no way to trade out of the mess.

Get a receivership

Keeping the finances in place during pitfalls in a business partnership can be stressful for everyone. If you are unsure about what to do next, we recommend speaking to experts to gain more insight into receiverships for your business, before you make decisions.