WHEN TO START REDUCING EXPENSES?
Reducing expenses is a decision the chairman may press for. As the chairman of the board, it is the responsibility of the chairman to ensure that the company is financially stable and sustainable in the long term. If the company is facing financial challenges or if expenses are significantly higher than revenue, the chairman may need to press for reducing business expenses. Responsibility for cash and cash flow would normally be with the CEO and their finance director but all too often in difficult circumstances, optimism takes over and action isn’t taken early enough.
Here are some scenarios when a chairman may need to press for reducing business expenses:
Declining revenue: If the company’s revenue is declining or if the company is facing a loss, it may be necessary to reduce expenses to maintain profitability.
Financial crisis: If the company is facing a financial crisis or is at risk of insolvency, the chairman may need to press for immediate expense reductions to preserve the company’s financial stability.
Market changes: If there are significant changes in the market or industry, such as increased competition or changes in consumer behaviour, it may be necessary to reduce expenses to stay competitive.
Inefficient operations: If the company’s operations are inefficient or there is waste in the system, the chairman may need to press the CEO for expense reductions to improve profitability.
Shareholder pressure: If shareholders are pressing for cost-cutting measures or if the company is underperforming relative to its peers, the chairman may need to take action to reduce expenses. This would be a sad turn of affairs if the investors are the ones calling for expense reduction as it is indicative the CEO and other directors are not in control of the business.
It is important for the chairman to balance the need to reduce expenses with the need to maintain the company’s long-term growth and competitiveness. The chairman should work with the CEO and the board to develop a comprehensive plan of action that addresses the company’s financial challenges while preserving its core strengths and competitive advantages.