Thursday, September 17, 2009

Some budget cuts can do more bad than good

In a recession, businesses of all types are fighting to stay afloat by reducing overhead costs, but what cuts are actually harming your business?

Many businesses reduce costs by cutting marketing and laying off employees. Is this the answer? The article "Basic Mistakes Retailers Make When Times are Tough" by Elizabeth Walker (seen on describes how a furniture store in Canada (The Brick) dealt with tough economic times.

To "save" money, The Brick severely reduced advertising and laid off hundreds of employees. Less customers visited the store and the ones that did stop in couldn't find an employee to ring up their purchase. Revenues dropped even lower until their new CEO, Bill Gregson, led the company in the right direction.

Gregson felt that very little of the company's problems were actually a result of the recession. He decided to hire back the employees, advertise more, and developed an agreement with the manufacturer to hold inventory instead of Brick warehouses to help prevent excess inventory sitting around. For the month of August, sales were up.

This is not to say that these practices will absolutely save you during a recession. As the author states, "We are saying that it's easy to 'cut off your nose in spite of your face' when you cut the very services that bring business in the door. Bottom line is: when the economy is bad is the time to increase your marketing and upgrade your service. Do so and you'll be way ahead when the good times are back."

Budget cuts article

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