Originally published on Inc Magazine’s Process Playbook column by Chris Ronzio
The idea that money will be taken from anything you value feels threatening. If you really love your school’s art program, and the new budget cuts the program, it’s easy to get upset at the headline.
If you’re cutting expenses for the viability of a business or community, budget cuts might be necessary. And it would shift the conversation to focus on the highest priorities.
But if you’re shifting money from one thing to another – as the case often is – there is more happening than simply cutting funds.
What if the program’s budget was cut so your school could provide remote students at-home art supplies? Or to help fund a new community art center? In these cases, budget cuts are great.
And the same can be true for your business if you do it right. Here’s how:
Create a healthy pressure
Having a system in place where any initiative’s budget can be cut at any time puts a healthy pressure on how your business spends.
Over the past few years at Trainual, we’ve hired new leaders and reorganized departments to accommodate our rapid growth. And with each change comes new suggestions for how we can operate more efficiently.
We’ve set up new software tools, invested in new vendors, and allocated budget to things that we think will help us hit our goals.
But, just because we spend money on something this month, it doesn’t give the green light to do the same next month. Without the possibility of cutting an initiative’s budget, unnecessary expenses slip through the cracks. So, each month, our director of finance and head of people meet with each department to see what they want to start, stop, and continue.
What new expenses are they lobbying to take on? Where can they cut spending? And whom do they want to hire, to take on what? This constant communication keeps us from paying for unused software licenses and underused vendors while allowing us to spend the money smarter.
Prioritize your time
Back when I was consulting, I worked with a printing company that did everything from business cards to travel brochures. While auditing their roles and responsibilities, I saw that the owner was driving a van to deliver orders three times a week.
This kind of thing is all too familiar for small businesses. With the company focusing on paying those already on payroll, it’s hard to justify adding someone even part time. So, to save company money, the owner takes on extra responsibilities.
But, really, this costs more.
Instead of spending what the work is worth, the owner spends 2 to 3 times that to get the job done on their salary. And, simultaneously, they take up time that could be better spent on other tasks.
For instance, if instead of driving around town, the business owner spent those 8 hours prospecting, they might grow their business 20 percent this year.
So, by cutting the budget, the entrepreneur shifts dollars toward a more efficient resource – like a courier service – and gives themself the capacity to fulfill other obligations – like growing the business.
Specialize to create efficiency
As a company grows, each person naturally takes on more and more to fulfill the increased workload, even if some of the responsibilities are below their skill set or experience.
And it’s expected they will eventually fall off their plate. But without a catalyst, like budget cuts, this re-delegation doesn’t always happen.
Cutting any initiative’s budget – like the deliveries above – forces roles and responsibilities to shift within the business, ideally from higher-wage employees to lower-wage employees. And, in the process, frees up bandwidth for more specialized tasks.
Take time before shifting the spend
Sometimes, you might realize you’re overfunding an initiative but you don’t know where to reallocate the funds. In this case, don’t force a decision, just make the cut.
Maybe you overhired in one department, and someone isn’t performing as they should. Rather than immediately replacing that person, cut the department’s budget, and let them go. Then, wait to see what new needs emerge in the department. If they do, then you can always reallocate funds back.
It’s possible that the rest of the team absorbs that person’s responsibilities, and a completely different need arises. Putting the same dollars toward the new use is better than spending on someone who’s not working out.
In all of these cases, budget cuts are great for business. They avoid overfunding, where profits are eaten up, losses build, and inefficiency creeps in.