How to survive tough economic times without laying off employees.
As a business owner or manager, for the last 18 months you have been faced with shrinking profit margins and fewer customers waiting in line to buy your “hot product or service.” Questions about how to survive these seemingly difficult times usually result in answers like…”we should lay off more workers” or, “…let’s close the office located in Suburbia”.
The problem with this approach is that… when the economy recovers, you’ll be looking to rehire the people you laid off in the first place. Unfortunately, you may find that they have moved on to another job, returned to school, or started their own business. You then put yourself in a situation where you must now recruit and train new employees or hire more experienced workers who can “succeed”.
Laying off employees during an economic crisis should be a “last resort”. Well, at least not until you’ve explored all the other avenues, namely trying the strategies I’ve outlined below. I’ll even go further. If you’ve implemented some (if not all) of these strategies, or have made them an integral part of your company’s operating culture, chances are you haven’t canceled your long-planned vacation to the Bahamas.
Moreover, although these key strategies can be adopted by businesses regardless of their size, they are primarily geared towards Small Businesses. The definition of a small business will obviously vary by industry and, more importantly, it may depend on the personal judgment of the business owner. Regardless, you can find out your business classification as defined by the Small Business Association (SBA) by going to http://www.sba.gov
Survival Strategy
1. Schedule a Weekly Budget Meeting. The assumption is that you have a budget. You may be surprised at how many small businesses (a) don’t spend time developing proper budgets or, (b) don’t have a regular budget review process. Use the meeting to challenge managers and supervisors to find ways to reduce spending in their respective departments (and reward them). Have the manager call by conference call if you have satellite offices in different parts of the country or globally. Make sure they are prepared with arguments to justify their various departmental budgets and plans on how to cut costs.
2. Forming a Committee/Profit Task Force. This should be driven by employees. Challenge them to contribute ideas but, more importantly, reward them for great ideas that are actually implemented.
3. Change your performance review. Are employee goals (especially Senior Managers) aligned with company goals (i.e. increase sales, reduce expenses, improve customer service)? Was the goal more than rhetoric or “feel good” words? Simply put, are the goals specific enough and…can you actually “MEASURE” the progress?
4. Review your “Turnover” ratio. Profits are quickly eaten up by idle inventory of late paying customers. Incorporate these items as part of your budget review process. Work closely with your vendors to reduce case packs, or get rid of unsold items! Offer to settle with your customers who are late paying or arrange installment payments on outstanding receivables. Getting something is better than nothing in tough economic times.
5. Rely on the leverage you have with your vendors. Partnerships should be more than just “talking”. Negotiate better terms, i.e. try to add “days to pay” to your invoices. Even taking an extra 5 days per month on a business basis worth $1 million per year can earn your business more than $3,000 in additional interest, after taxes. That’s real money!
6. Change Your Payroll Cycle. If you’re on a weekly payroll cycle, consider moving to biweekly. If you pay biweekly, consider moving to semi-monthly (15th and 30th). Do a cost-benefit analysis to make sure this makes sense for your business. You can reduce payroll processing costs which can be significant especially if you have a sizeable employee base.
7. Get on the “green” bandwagon early. Become more energy efficient. Who knows… you might even qualify for a tax break. Make it a habit for employees to turn off the lights when they leave the conference room. Installing sensors for rooms or areas that are rarely used may be worth thinking about. Shut down the computer and unplug office equipment at the end of the day. According to the government’s ENERGY STAR program, 40% of the electricity used by household electronics is consumed when the product is turned off. I would imagine this applies to office equipment as well.
8. Meet with your banker. Immediately set up a meeting. Not only will you build critical relationships (relationships that too many managers ignore), but also solicit ideas from them. They benefit from seeing what works (or doesn’t) for other businesses, so feel free to pick their brains. Best of all… it’s free advice! Discuss things like…putting extra money in Money Market accounts, CDs etc. See if you can move your operating account to an interest-bearing checking account. While the interest earned may not be “earth-shattering”, it is still money earned without doing anything different. If there is a limit to the number of checks that can be written in such an account, analyze the fees the bank might charge vs. interest that can be earned. Pay bills electronically and offer direct deposits to your employees to reduce check writing costs. Also, are you carrying too high a balance in your checking account? Work with your accountant and look at your cash flow to see if some of that idle money can earn interest elsewhere.
9. Cut your travel budget (if there’s still one). Telephone and/or Video Conferencing will save you a lot of money. Also, do the seminars and conferences you attend each year really pay off? Perhaps attending 2 instead of 4 would reap the same benefits.
10. Contract renegotiation. Bring in service providers (phone, software, etc.) and consultants to discuss current contracts and reduce costs. Take a look at your rent (office equipment, rent, etc). Also, are you taking full advantage of “hidden offers” and/or discounts? Have you been paying attention to invoices in an effort to avoid “overcharging”? Take advantage of the economic crisis. No one wants to lose current customers. If necessary, bring in another provider to bid on your business. Caution: don’t hire them just because they’re cheap!
11. Taxation strategy. If you invest heavily in equipment and are subject to high business equipment taxes Explore states with business-friendly tax codes. There are benefits to setting up an “equipment holding” company in a low-tax state. Business losses and write-offs can also result in your business being eligible for various tax breaks and deductions. Talk to a good tax attorney about how to maximize these and other tax deductions for your business.
12. Budget for “reserves”. In other words, have a “contingency” or “miscellaneous” account as a line item in your budget. A good starting point is to set aside 5% – 10% of your total expenses for unforeseen circumstances. Keep in mind, if we could predict the future, we would all be millionaires. Including a “backup” account as an “expenses” item is good business policy.
13. Look at your health insurance benefits. If you haven’t spoken to your Insurance Representative in a long time, now is a good time. You should review your policy every six months. A slight change in your workforce level can have a significant impact on employers (and employees) will your contract be renewed? Can you terminate the contract without being charged anything? You may be able to find a good deal out there without sacrificing coverage.
14. Conduct an annual invoice audit. Pay close attention to invoices received from your vendors. If you don’t have a good system in place to monitor invoices before they are paid, you may be surprised at the number of duplicates or incorrect payments that can occur. An additional “0” added to the $1,000 invoice results in a $10,000 payment and a $9,000 error. Incentivize your employees when they discover these mistakes. For example, if they recover money, share it with them. This is a “win-win” deal!
15. Catch up on abandoned customers. If a competitor closes its door, it should mean “OPENCY”. Customers may cut back, but when things get better or they find a new job, they’ll come back. You will want to make sure that you are well positioned to fill the gaps left by your competitors.
16. Explore new sales markets. As strange as it may seem, an economic downturn is a great time to look for opportunities in new markets. Areas that were once shunned (especially overseas) are now worth a second or third look. Again, get ideas from your employees.
17. Stay involved in your community. Don’t reduce your sponsorship for community events and charitable donations. Money spent on Little League Baseball uniforms is a “big deal”. People remember this. Those people are good potential customers or referral sources. In fact, it’s worth a lot more than the tons of money you spend on tokens at your local Major League Baseball stadium. You know… which no one notices!
18. Do you Twitter? Do you have a presence on social networking sites? Yes, I mean Facebook, Twitter, MySpace, etc. Are your employees organized on LinkedIn? Even if you’re a “Mom and Pop” type of business, consider paying one of your tech-savvy employees an extra 15 or 20 cents a week to post updates and monitor these sites for you if you don’t have a “know how.”
19. Part Time and Independent Contractor. Before you consider laying off, explore the possibilities of reducing hours or changing the employee’s status to “Independent Contractor”. Employees will continue to value your earnings and, at the same time, you will save money on payroll taxes and/or health insurance contributions that are your liability.
20. Finally… be honest with employees. Do not tell them today everything is fine, and tomorrow starts to lay off. On the other hand, if things get really tough, let them know. If you build an honest relationship and take the time to tell you how much you appreciate their efforts, they will “fight” for you during difficult times. If you have to force them to stop, they will understand even if it hurts. Chances are, if you had implemented the other 19 strategies he mentioned and made them an integral part of your company culture, your employees would be the ones to save your company from economic collapse.
