COVID-19: Which costs should business cut down to optimize their profit?

In this week, there is news that GM, Pandora, Asian Airlines,… has fired thousands of employees which sets off the alarm of reducing staff size all over the world due to SARS-CoV2 (COVID-19). The outbreak of COVID-19 leads to bankruptcy of numerous companies, even big corp, thereby causing cost-cutting to optimize their profits and continue working. However, which costs to cut down is what business owners have to consider.

In fact, not all costs are bad and need cutting. Therefore, before cutting cost, businesses have to find out “What brings value to customers?” and develop strategies to ensure those values are always preserved.

The cost reduction cannot take place simultaneously and need to be clearly defined: which to cut, where to cut and where to invest. Thus, the cost cutting brings about efficiency and competitive advantage of enterprises. If not, after cutting costs, businesses lose competitive advantage which may cause danger and failure.

Based on the relationship between cost and the scale of production of business, it can be divided into two types of costs: fixed costs and variable costs.

•  A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that has to be paid by a company, independent of any specific business activities. This includes: Fixed assets Depreciation expense, Payroll Management, Loan interest, office rent.
• Variable costs are the costs that change directly with the change of production scale. This includes materials costs, wages of production workers …

With the complicated situation of COVID-19, the activities of the business can be completely interrupted due to the lack of cash flow, down mood of personnel and many other factors. One of the most effective solutions that can be applied during this period is to convert fixed costs into variable costs. Fixed costs, such as employee salaries, are a significant expense in the total fixed cost of the business, thereby converting some positions to outsourcing is one of the measures to convert from fixed costs to the variable costs.

GA Advisor is a prominent outsourcing service provider for backoffice such as finance, accounting, HR and IT. We have a deeper understanding of the industry and we offer accurate solutions for all the issues being faced by the clients.

For detail information and consulting, please contact us:

Mr Hai Pham – Email: hai.pham@gaadvisor.net/ Tel: (84) 98 561 3952

GA ADVISOR VIET NAM

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