The Importance of Being Realistic When Making Budget Cuts

When it comes to operating a business, having a functional budget is essential. It outlines how funds will be spent, allocating resources based on projected need, and provides a sense of much-needed structure when it comes to addressing various expenses. Often, when a company needs to reel in their spending, the easiest method is to review the budget and makes a series of cuts until the new goal can be realized. However, during this process, it is easy to be overzealous, and that can hurt your operations.

“Planning in excel always works out perfectly; but managing the reality of the “day to day” efforts is where the wrench comes in play! Collaborate with your middle management and be sure they understand the message that needs to be sent to the field. Collect feedback on the plan so you can manage the transitional impact that faces the company! The Wholefoods case study below recently exposed true management failure and a case study that is worth watching closely. CSS factors in the impact of the great employee – call us for our expertise on your next hire.” Says Sharon Tsao, CMO, Contemporary Staffing Solutions.

The Risk of Unrealistic Budget Cuts

Since a budget defines spending objectives and limits, it exudes a significant amount of control over an organization. Key decisions are made based on the availability or lack of funding, such as the level of inventory to maintain or whether to pursue a project.

While such decision-making seems like a common part of business operations, setting unrealistic limits can be incredibly damaging to the business. Failing to accommodate for certain variable or one-off costs can mean inventories fall short or broken equipment isn’t replaced. When this occurs, you run the risk of not being able to meet customer needs, as either the products aren’t available for purchase or vital portions of the production process are inhibited.

Though it is necessary to exhibit control over a company through the use of a budget, putting a stranglehold on funds without just cause can lead to problems, even for well-established businesses.

An Example of Unrealistic Cuts

Whole Foods, a popular chain of grocery stores that was recently acquired by Amazon, has been struggling with food shortages in many of their locations (predating the recent acquisition). Employees blame the organization’s buying system, referred to as order-to-shelf, which limits their purchasing capacity when it comes to keeping shelves stocked.

Essentially, the highly controlled system was designed to lower the company’s food costs by limiting the amount of inventory stored in back rooms. The intention was to cut down on waste and avoid storing more items than necessary.

While the premise was sound, the reality wasn’t ideal. Since stores can’t purchase appropriate amounts of inventory, many shelves remain nearly empty (including those housing staple products like potatoes and onions), even though there are plenty of customers who would happily make purchases of the missing items. That means the cost-savings venture isn’t just reducing waste, it is costing them sales, suggesting that the budget-cutting efforts have gone too far. Plus, the constant disappointment from shoppers harms employee morale, which will inevitably affect their performance and feelings about their employers.

“One of middle managements’ job is to motivate employees so we can excel and surpass our stretch goals – this isn’t measured in an excel spreadsheet. The value of an “A Player” at your company needs to be factored in and Contemporary Staffing Solutions goes above and beyond the job description and skills needed for success by asking about the goals of the company, the perks offered, and the ROI your expecting on each new hire. We are true partners going above and beyond the budget for the year!” Says Evan Violette, National Sales Manager, Contemporary Staffing Solutions.

Yes, having an appropriate budget and necessary spending controls in place is essential, but cutting back too far can often do more harm than good, negatively impacting both the company’s customers and workers. This means that creating a budget that is realistic and functional should be the primary goal, and not just slashing away at expenses without respect for the potential consequences.

If you are interested in learning more about crafting a reasonable budget, the team at Contemporary Staffing Services can help. Contact us to speak with a knowledgeable member of our staff today.