by Ben Scott Knight, Director, Concentra
Experience suggests that two of the biggest changes any business will ever go through are a major cost-cutting programme or a merger/acquisition – with the former particularly relevant in the current climate. In both cases, organisations have to take a long, hard look at every aspect of their operations in order to derive the last penny of value. When value is measured in monetary terms, as it usually is, that means they have to understand what impact these changes will have on their cash flow in both the long and short terms.
It is vital for companies to know exactly how costs are being affected, whether by changes in staffing levels, operational expenditure or asset base.
When a company undertakes a cost-reduction programme, it needs to be able to keep a close eye on the savings that are being made. For example, in the case of redundancies, there is likely to be an initial outlay in severance packages, but there will then be a cost saving as the relevant salary payments no longer have to be made. Similarly, disposing of assets (e.g., through office closures) can result in a large injection of cash, although this may be staggered over a number of payments. In order to manage their cash flow effectively, companies need to keep track of when these payments are due.
All in all, it is vital for companies to know exactly how costs are being affected, whether by changes in staffing levels, operational expenditure or asset base. After a merger or acquisition, it is especially necessary to determine accurately where there is duplication of effort – it’s not cost-effective, for example, to have two departments carrying out the same work.