You know you want to cut costs—you may even know the cost-reduction benchmarks you want to hit—but how do you define and implement this cost reduction in a strategic, sustainable way? Hiring an experienced Consulting CFO to examine your current costs and develop a strategy for reducing those costs will yield a more actionable cost-cutting strategy and better empower your organization to achieve its long-term goals.
How can a Consulting CFO help you make more strategic, actionable cost cuts?
They Have More Experience with a Variety of Companies in your Industry
When you hire a Consulting CFO to improve your current business model, one of the first things he or she will look at is your cash flow. Where is cash coming in, where is cash going out, and—most importantly—where can improvements be made?
While it’s widely understood that a CFO brings vast financial knowledge, an often-overlooked value of hiring a Consulting CFO is the knowledge he or she will have in your organization’s specific industry.
This means you can tap into knowledge that you and your team would not have otherwise had access to. While Consulting CFOs will always keep the details of their clients private and will never present a conflict of interest, they inherently accumulate data on costs, industry trends, pricing, and competition that can hugely benefit your organization.
Your Consulting CFO will use this information to analyze whether your current spends are on-par with competitors in your industry. Are there comparable vendors that charge less for the same service or materials? Are you holding too much (or too) little inventory? Are there services or products you’re paying for that aren’t necessary for optimal business activities?
Their Implementation of Cost Cuts is More Actionable
It is not uncommon for an organization to define cost reduction targets then leave determining how to hit those targets to specific managers with the idea that managers have more knowledge in their arm of the company to be able to define cost cuts. The problem is that this cost-cutting strategy is neither highly actionable nor tied into the overall business strategy and integrated operations.
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A Consulting CFO doesn’t come in and give a broad cost reduction target; he digs into the numbers and details exactly where costs should be cut and how. This means the pressure is off managers to determine how to cut costs to achieve targets.
This means the cost cuts are more actionable, more in line with overall company strategy, and won’t inadvertently undermine business operations.
They are More Likely to Use Data-Based Decision-Making
One of the most common reason cost cuts don’t stick in organizations is that they don’t address the true drivers of costs or are too difficult to maintain over time.
“Sometimes, managers lack deep enough insight into their own operations to set useful cost reduction targets. In the midst of a crisis, they look for easily available benchmarks, such as what similar companies have accomplished, rather than taking the time to conduct a bottom-up examination of which costs can—and should—be cut. In other cases, individual business unit heads try to meet targets with draconian measures that are unrealistic over the long term, such as across-the-board cuts that don’t differentiate between those that add value or destroy it. In still others, managers use inaccurate or incomplete data to track costs, thus missing important opportunities and confounding efforts to ensure accountability,” writes mckinsey.com.
There is a lot of data that goes into making strategic cost-cutting decisions, and most managers don’t have the time or information to be able to sift through it all themselves. The person in charge of cost cuts needs to have detailed knowledge of where costs occur and make tough subjective judgments about which cuts are in line with business strategy and which are not.
Cost Cuts Will Be Tied to Your Strategy
When a Consulting CFO is cutting costs in your organization, he or she isn’t just cutting costs across the board to make everything as cheap as possible. If you hire a quality Consulting CFO, they’re unlikely to cut costs just to see the biggest number of dollars cut at the end of the day. Your cost cuts should be directly connected to optimizing your company’s core strategy; not just optimizing for a smaller number in the expense column.
They Won’t Cheap Out on Systems Just for the Sake of Cheaping Out
When it comes to systems, a CFO’s main driver is determining which systems need to be in place to achieve your goals with minimal cost, time, and disruption. Many consultants will also have expertise in systems, which make them better equipped to strategically determine which systems need cost cuts and which need further optimization.
They also likely have experience with a number of financial systems, which means they have firsthand knowledge about what systems work best at your current stage of growth. Since they don’t have an emotional tie or loyalty (or disloyalty) to current systems, which is often the case with those actively using the existing systems, the Consulting CFO will be able to make more objective systems decisions for your organization.
Cost cutting isn’t a simple “big numbers are bad, small numbers are good” game. To achieve cost cutting that is sustainable and that drives company goals as opposed to undermining them, thoughtful consideration, data analysis, and objectivity needs to take place. The knowledge and experience of a consulting CFO drives more strategic cost cuts that ultimately result in an organization being better equipped to meet its goals.