If You're Downsizing, Remember to Diminish Overheads!

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In the last two years, many local charities and charitable companies providing services to communities have found the funding stream from Government and local authorities virtually dry up. Indeed some lost 100% of their funding and simply ceased to exist. Most of those that have survived, have downsized, often reducing what they do to core services or one or two priority strands of work.

One such small local charitable company, which had until 2010 a remit and funding for supporting volunteering and community groups across a whole borough, lost 80% of its income within 18 months. Over a 12 month period to April 2012, the workforce was reduced from 11 to 2, through some workers finding other jobs and redundancies. The business was flattened and streamlined organisationally as non-face-to-face workers like the manager and administrative staff departed.

Two linked problems emerged during the downsizing period. The company was forced to use its reserves, built up over an 11 year period, using 71% in 8 months, being barely able to maintain the reserves required by the Charity Commission. The main cause of this draining away of reserves was a failure by the business to diminish the cost of overheads alongside the reduction in its workforce. It now appears that this might be a common failing within small businesses experiencing hard times…

Unfortunately, selling off assets that are no longer needed does not produce much revenue. You certainly don't get back much from selling your computers, laptops, peripherals and office furniture! However, because they didn't really try, the company finished up with a lot of 'clutter', when it came to downsizing its premises. The attitude of: 'don't get rid of it, you never know when it might come in handy', also needs to be diminished! However, the cost problem of retaining redundant assets pales in comparison with the cost problem of not downsizing business support services and payments for them.

The company with 11 employees had a complex networked IT set up and a costly servicing contract to maintain the hardware, server and network, update the software and troubleshoot any problems. Later, when the two remaining staff were using only their laptops, it became obvious that the IT arrangements were also redundant and the servicing costs unnecessary. No one during the business downsizing period had negotiated any reduction. Similarly, a 5 year rental agreement for a new 'all singing and dancing' photocopier was entered into as the business which already had two other functioning photocopiers, shrank!

It also took too much time to cancel redundant mobile phone contracts and phone lines and get rid of a franking machine contract - unused for 12 months. Further wasted expenditure went on a business user energy supply contract with a hefty standing charge for premises, still in place six months after premises were vacated, and an insurance premium for cover for the contents that were no longer there!

All this may seem like a catalogue of failures, which any sensible businessman would naturally recognise and avoid, however when a small business is under the stress of downsizing, maybe some things can get overlooked?