This is how we survive tough economic times without dismissing employees.
As a business owner or manager, over the past 18 months you have been faced with shrinking profit margins and fewer customers standing up to buy your once thought of being “hot products or services.” The question of how to survive these seemingly tough times usually results in answers like … “we have to lay off more workers” or “… let’s close the office in Suburbia”.
The problem with this approach is that … when the economy rebounds, you will be looking to hire the very people you fired. Unfortunately, you may find that they have moved on to other jobs, gone back to school or started their own businesses. You have then put yourself in a situation where you now have to hire and train a new employee or hire a more experienced worker who can “hit the ground running”.
Dismissing employees in the economic downturn should be a “last resort”. Well, at least not until you’ve explored all other avenues, namely to try the strategies I’ve outlined below. I even want to go a step further. If you’ve already 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.
While these key strategies can be adopted by companies of any size, they are primarily aimed at small businesses. The definition of a small business will, of course, vary by industry, and more importantly, it may depend on the business owner’s personal judgment. Either way, you can find out the classification of your business as defined by the Small Business Association (SBA) by going to http://www.sba.gov
1. Schedule weekly budget meetings. The assumption is that you have a budget. You may be surprised how many small businesses either (a) do not spend time developing a proper budget, or (b) do not have a regular budget review process. Use the meeting to challenge leaders and supervisors to find ways to reduce spending in their respective departments (and reward them). Call managers through conference calls if you have satellite offices in different parts of the country or globally. Make sure they are prepared with arguments to justify the budgets of their various departments and plans on how to cut costs.
2. Create a Profit Committee / Task Force. This must be employee-driven. Challenge them to contribute ideas but, more importantly, reward them for good ideas that are actually being implemented.
3. Update your efficiency reviews. Are employees (especially Senior Managers) goals in line with company goals (i.e. increase sales, reduce expenses, improve customer service)? Are the goals more than just rhetoric or “feel good” words? In short, the goals are specific enough, and … can you really “GOAL” progress?
4. Review your “turnover” relationships. Profits are quickly eaten by idle stocks for late-paying customers. Integrate these items as part of your budget review process. Work closely with your suppliers to reduce packages, or get rid of non-selling items! Offer to settle with your late paid customers or arrange payment of outstanding receivables. Getting something is better than nothing in tough economic times.
5. Rely on the leverage you have with your suppliers. Partnerships need to be more than just “talk”. Negotiate better terms, ie try increasing “days to pay” for your invoices. Even if you take an extra 5 days a month based on a value valued at $ 1 million annually, you can earn your company’s extra interest in excess of $ 3,000 after tax. That’s real money!
6. Change your pay cycle. If you are on a weekly pay cycle, consider going to weekly. If you pay weekly, consider going to half-month (15th and 30th). Perform a cost-benefit analysis to make sure this makes sense for your business. You can reduce the cost of payroll processing, which can be significant, especially if you have a fairly large staff base.
7. Get on the “green” wagon early. Become more energy efficient. Who knows … you might even qualify for tax breaks. Have employees turn off lights when they leave conference rooms. You may want to consider installing sensors for rooms or areas that are rarely used. Turn off computers and unplug the office equipment at the end of each day. According to the government’s ENERGY STAR program, 40% of the electricity used by home electronics is consumed while the products are switched off. I imagine this applies to office equipment as well.
8. Meet with your banker. Create a meeting right away. Not only will you build a critical relationship (one that many leaders neglect), but ask them for ideas. They have the benefit of seeing what works (or doesn’t) for other companies, so feel free to pick their brain. Best of all … it’s free advice! Discuss things like … putting extra cash into 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’s still money earned without doing anything else. If there is a limit on the amount of checks that can be written into such an account, analyze the fees that the bank can charge vs. the interest that can be earned. Pay bills electronically and offer direct deposit to your employees to reduce any check charge charges. Do you have too high a balance on your checking account? Work with your accountant and look at your cash flow to see if some of the idle money can earn interest elsewhere.
9. Trim your travel budget (if you still have one). Telephone and / or video conferencing saves you lots of cash. Are the seminars and conferences you attend every year really paying off? Maybe joining 2 instead of 4 reaps the same benefits.
10. Renegotiate contracts. Bring service providers (phone, software, etc.) and consultants to discuss current contracts and reduce fees. Look at your leases (office equipment, rental, etc.). Do you also take full advantage of “hidden offers” and / or discounts? Have you been aware of the invoices in an attempt to avoid “overcharging”? Take advantage of the economic downturn. No one wants to lose a customer at this point. Where relevant, bring other providers to bid on your business. Caution: do not hire them just because they are cheap!
11. Tax strategies. If you invest heavily in equipment and have high taxes on business equipment, explore states with business-friendly tax codes. There are benefits to establishing a “equipment holding” company in a low tax state. Business losses and depreciation can also result in your business qualifying for various tax deductions 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, you have a “contingency” or “miscellaneous” account as a line item in your budget. A good starting point would be to dedicate 5% – 10% of all your total expenses in unforeseen circumstances. Remember, if we could predict the future, we would all be millionaires. Incorporating the “reserve” account as an “expense” item is simply good business policy.
13. Look at your health insurance benefits. If you haven’t talked to your insurance professional in a while, now would be a good time. You still need to review your policy every six months. A small change in your workforce level can have a significant impact on the employer (and the employee), will your contract be renewed? Can you break the contract without incurring fees? You may be able to find a good deal out there without sacrificing coverage.
14. Perform annual invoice audits. Take a close look at the invoices received from your suppliers. If you do not have a good system for monitoring your invoices before they are paid, you may be surprised at the number of duplicates or incorrect payments that may occur. An extra “0” added to a $ 1,000 invoice results in a $ 10,000 payment and a $ 9,000 error. Incentive your employees as they discover these flaws. For example, if they recover money, share it with them. It’s a “win-win” deal!
15. Go for abandoned customers. If a competitor closes its doors, it should spell “O P P O R T U N I T Y”. The customer may cut back, but when things get better or they find a new job, they are back. You want to make sure that you are well positioned to fill the gap left by your competitor.
16. Explore new sales markets. As strange as it may seem, an economic downturn is the perfect time to look for opportunities in new markets. Areas that were once avoided (especially abroad) now deserve a second or third look. Again, get ideas from your employees.
17. Get involved in your community. Do not cut back on your sponsorship of community events and charitable donations. Money spent on the uniforms of the Little League Baseball team is the “big deal”. People remember that. These people are potential customers or good referral sources. It is actually worth much more than the amount of money you spent on the sign at your local Major League Baseball stadium. You know … the one that nobody notices!
18. are you twittering? Do you have a presence on the social networking sites? Yes, I mean Facebook, Twitter, MySpace, etc. Are your employees set up on LinkedIn? Even if you are a “mom and pop” business type, you may want to consider paying one of your tech savvy staff 15 or 20 cents extra a week to send updates and monitor these sites for you if you do not have the “know” how “.
19. Part-time and independent contractors. Before considering layoffs, consider the possibility of reducing hours or changing the status of an “Independent Contractor” employee. Employees will still appreciate having an income, and at the same time, you will save money on payroll taxes and / or health insurance contributions that you were required to pay.
20. Finally … be honest with the employees. Don’t tell them today that things are big and then tomorrow will begin to dismiss. On the other hand, if things are really tough, then tell them. If you build an honest relationship and take the time to tell you how much you appreciate their efforts, they will “go to bat” for you during those difficult times. If you need to resort to dismissing them, they understand, even if it hurts. Chances are that if you have implemented the other 19 strategies mentioned to her and made them an integral part of your company’s culture, your employees will be the ones to save your business from going into a financial downturn.