Cutting the fat

When John and Jane Trying-To-Get-By sit down to determine if they are going to run out of month before they run out of money, there are only two basic options available if it looks like they will be caught short before the next payday: Make more money or spend less money—or some combination of the two.

The make-more-money approach is better because it allows John and Jane to maintain or even improve their standard of living. They can continue their current level of spending without much concern about paying their bills and keeping the lights on. However, making more money can be difficult in a depressed economy.

The spend-less-money option is not as fun because it means they should create a realistic budget based on their known sources of income, and then carefully watch where the money is spent. Some options to “cut the fat” might include renting a video instead of going to the movie theater, cooking meals instead of eating at restaurants, or planning trips into town to save on gas.

This is a simple lesson that everyone who works for a living has had to deal with on a regular basis. Unfortunately, some individuals live in a world of fantasy where a book on creating a budget can be found in the “fiction” section of their library, and the only time they think about being fiscally fit is when they are running for reelection.

Doubly unfortunate is that those same individuals have a lot of influence over everyone else’s ability to just get by. A case in point is the recent proposal by CUC to add a 3.5 cent per kilowatt-hour fuel surcharge to the trying-to-get-by group’s utility bill. According to the dictionary, a surcharge can be defined as “an additional or excessive load or burden.” This will definitely create an excessive burden when the 32 percent increase is tacked onto the utility bill. If you are paying $200 per month for electricity, your discretionary income just got slashed by over $60.

Now CUC would not have to seriously consider the surcharge if the government was paying their bill on time. However, when the government and other customers are delinquent on their bill to the tune of mucho millions, CUC has the option to either cut the fat or make the majority of customers suffer for the folly of a few.

The proposed budget is another work of fiction based on possible additional sources of revenue, while ignoring the huge impact that will occur when some garment factories start laying off people in preparation to move their operations elsewhere.

With all this said about the government, a glimmer of hope occurred when Rep. Claudio Norita proposed to make the CNMI Legislature a part-time lawmaking body through House Legislative Initiative 14-8. Even though it would make perfect sense, and even though it would save about $3.2 million per year, this is one of those believe-it-when-I-see-it proposals that could and should happen, but it goes against the fat-is-where-it’s-at attitude and actions of most (not all) politicians.

In the final analysis, big government will continue to get bigger, and the small spendable income of John and Jane Trying-To-Get-By will continue to shrink. As oil prices continue to soar into the stratosphere, everyone who needs fuel and electricity will feel the impact—which is everyone, unless you’re Amish. The price of goods and services will go up in the future because business owners will notice their profit margins shrinking, and like CUC, they will just pass the added cost onto the consumer.

For John and Jane, it will be more difficult to get by. For business owners, it means you will need to increase productivity and reduce inefficiencies if you want to maintain your prices. A quick fix to reduce costs is to downsize your staff. This works, but it can be counterproductive. Last minute, across-the-board measures to reduce expenses will not only cut the fat, but it could also cut into the meat of your business.

There is a broad range of cost-cutting techniques you should consider carefully so you can develop a strategy for gaining long-term profitability. One of the things you can do is examine your current business model. Look at your market and ask how you could best deliver your products or services to customers. Your answers may reveal that your current infrastructure, processes or procedures need to be revamped to achieve greater efficiency. Perhaps a better, cheaper, more efficient method should be considered to reduce costs and boost productivity.

Whatever you consider, do not let it reduce the value you provide to the customer. Otherwise, your customers may shop somewhere else, which will only add to your financial woes. Remember, if you can cut the fat in a way that allows John and Jane to try and get by, you can create loyal customers and maintain profits.

(Rik is a business instructor at NMC and Janel is the owner of Positively Outrageous Results. They have consulted with over 400 businesses in 40 different industries, and can be contacted at: biz_results@yahoo.com)