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March 23. 2013 3:05AM

Christopher Thompson's Closing the Deal: What if sequestration happened to you?


 

If you've watched the news in the last month, you've likely heard all of the chatter taking place about sequestration. As it relates to our government, sequestration is a process that automatically reduces budgets for the majority of government departments and agencies. To put it simply, it's a major budget cut.

Because Congress couldn't come to an agreement on a budget, the major cuts went into effect March 1, and the numbers are staggering. To start, $85 billion in cuts would take place this year and a total of $1.2 trillion will be cut over the next 10 years.

While most people agree our government needs to trim some fat, the biggest issue is how the fat is being cut away. With sequestration, there aren't many choices. It's an across the board cut that impacts a lot of the key agencies and departments that serve us.

Sequestration will not impact Medicare, Medicaid or Social Security, but it will cut money from the Federal Aviation Administration, Department of Defense and the U.S. Customs and Border Protection, just to name a few.

The part of sequestration that baffles me is how they are making the cuts. As an example, if your household income was reduced by 20 percent, would you cut every expense you had by 20 percent? If you only paid 80 percent of your mortgage every month, you would lose your house, so guess what? The concept of across the board cuts would not work for any household. So why is the government doing it this way? It makes no sense.

Every business goes through various periods of time where they have to adjust expenses based on market and overall economic conditions. Every company has a budgeting process and based on numerous factors, that budget can change. But unlike the government, no company being managed by halfway competent people would implement an across the board budget cut. It just wouldn't work.

With that being said, this is an opportunity to have a discussion about budgets and expenses companies have. With the government making massive spending cuts, it begs the question. Can companies do the same? Expenses are always a discussion point among managers and executives who are responsible for the profitability of their organization. If the government can make massive cuts and still survive, can your department or organization do the same? As the saying goes, "you can't cut your way to profitability," but there is certainly fat within every organization. Here are a few areas to focus on:

Travel: Take a look at who is traveling in your organization and ask the tough questions. Do you really need to physically be there? Add up airline costs, hotels, meals, rental cars and lost productivity. Then ask if the trip really makes sense. Apply a simple return-on-investment formula to all travel, and I guarantee you will find money you can save.

Entertainment: Sure, having fun is a critical part of building high performing teams and keeping morale high in your organization. But are there other things you can do to reduce entertainment expenses? Most likely. Take a look at the frequency and type of entertainment along with alternatives that may have a similar impact. You don't always have to go all out.

Negotiate with vendors: Take a look at the top 10 highest value purchases your organization is planning on making this year and negotiate. There are tricks of the trade for getting the most bang for your buck. Challenge those responsible for major purchases to do their due diligence before awarding business to a potential vendor.

There are always ways to reduce expenses. Whatever you do, don't run your business like our government.


Christopher Thompson (cthompson@catch22solutions.com) writes Closing the Deal weekly for the Sunday News.


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