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How to Survive the ‘New Normal’

Source: DJM Focus – Des McGahern

The “new normal” has not been fun for most businesses. The phrase is catchy enough, but the reality is that many managers have had to face some fairly gut wrenching decisions over the past few years. If you’re a business owner, no doubt you know what I’m talking about.

With few exceptions, this new reality generally reflects lower revenues. Traditional adjustments to costs and expenses do not come close to making any significant impact so, painful, sometimes very painful, cost reductions are put off and maybe even ignored in the feint hope that things will turn around.

If you are at the point where you need to take a hard look at your business here are some tips on how to go about this process:

• Categorize all of your monthly spending into cost ‘buckets’. This will differ from business to business, but here are some common examples: Wages & Benefits, Energy; Supplies. Choose your buckets so the smallest category covers no less than 5% of your total costs and your largest covers no more than 50%.
• Plot these costs monthly. Go back in your records 13 or 25 months. Study the trends for each category or bucket by month. What do you see?
• For a more detailed look, take each monthly cost (for each category) and find what percentage that cost is of your Net Income. Now plot these numbers. What do you see?

This relatively easy exercise will get you on your way to understanding where your expenses are going. More importantly, it will tell you if your expenses are trending upwards, staying even or trending downwards relative to your income.

You are now on your way to having a clearer picture of your costs. Take a very close look at any line on your graph which is trending upwards. Identify which cost bucket this is and ask yourself the following questions:

• Is there a business reason why I should allow this trend to continue?
• What can I do today to address this trend?
• What are the consequences likely to be if this trend continues?

The first step to correcting a problem is understanding it. These steps will put you in control and give you visibility of potential issues. Begin by setting in place a plan to bring your costs in line with acceptable levels for your business. It you do this now you may be able to eliminate more painful consequences later.

Des McGahern, principle of DJM Focus Consulting (www.DJMfocus.com), provides
Leadership and Operations Management consulting. With over 20 years’ experience,
Des has held management positions with Fortune 500 companies and has helped both
large and small organizations improve efficiencies and increase productivity. His
consulting services include Strategic Planning, Organizational Development and Process
& Efficiency Improvement.

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