How to survive tough economic times without laying off employees.

As a business owner or manager, during the last 18 months you have been faced with shrinking profit margins and fewer customers lining up to purchase your once thought to be “hot products or services.” The question of how to survive these seemingly tough times usually results in answers such as…”we have to lay off more workers” or, “…let’s close the office located in Suburbia”.

The problem with this approach is that…when the economy rebounds, you will be looking to re-hire those very people you laid off in the first place. Unfortunately, you may discover that they have moved on to other jobs, gone back to school, or start their own businesses. You have then put yourself in a situation where you have to now hire and train a new employee or hire a more experienced worker who can “hit the ground running”.

Laying off employees during economic downturns should be a “last resort”. Well, at least not until you have explored all other avenues, namely trying the strategies I have outlined below. I will even go one step further. If you have 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 have not cancelled your long-planned vacation to the Bahamas.

Additionally, although these key strategies can be adopted by businesses regardless of 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 business owner’s personal assessment. Regardless, you can find out the classification of your business as defined by the Small Business Association (SBA) by going to http://www.sba.gov

Survival Strategies

1. Schedule Weekly Budget Meetings. The assumption is that you have a budget. You may be surprised at how many small businesses either (a) don’t spend the time to develop a proper budget or, (b) don’t have a regular budget review process. Use the meeting to challenge managers and supervisors to find ways to reduce expenses in their respective departments (and reward them). Have the managers call in via conference calls if you have satellite offices in various 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. Set up a Profit Committee/Task Force. This should be employee-driven. Challenge them to contribute ideas but, more importantly, reward them for good ideas that actually get implemented.

3. Revamp your performance reviews. Are the employees (especially Senior Managers) objectives aligned with company goals (i.e. increase sales, reduce expenses, improve customer service)? Are the goals more than simply rhetoric or “feel good” words? Simply put, are the objectives specific enough and…can you really “MEASURE” the progress?

4. Review your “Turnover” ratios. Profits are quickly eaten up by idle inventory a late-paying customers. Incorporate these items as a part of your budget review process. Work closely with your vendors to reduce case packs, or get simply get rid of items that don’t sell! Offer to settle with your late-paying customers or arrange for 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 “talk”. Negotiate better terms, i.e. try to increase “days to pay” for your invoices. Even taking an extra 5 days per month on a base of business valued at $1 million annually can earn your business extra interest of over $3,000, after taxes. That’s real money!

6. Change your Payroll Cycle. If you are on a weekly payroll cycle, consider moving to bi-weekly. If you are paying bi-weekly, consider moving to semi-monthly (15th and 30th). Perform 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 fairly large employee base.

7. Get on the “green” bandwagon early. Become more energy efficient. Who knows…you may even qualify for tax breaks. Get employees in the habit of turning off lights when they leave conference rooms. Installing sensors for rooms or areas used infrequently may be something to think about. Turn off computers and unplug office equipment at the end of each day. According to the government’s ENERGY STAR program, 40% of the electricity that home electronics use is consumed while the products are turned off. I would imagine this applies to office equipment as well.

8. Meet with your banker. Set up a meeting right away. Not only will you be building a critical relationship (one that too many managers neglect), but ask them for ideas. They have the benefit of seeing what works (or doesn’t) for other businesses so feel free to pick their brain. Best of all…it’s free advice! Discuss things like…putting extra cash in Money Market accounts, CD’s 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 on the amount of checks that can be written in such an account, analyze the fees that the bank may charge vs. the interest that can be earned. Pay bills electronically and offer direct deposit for your employees to reduce any check writing fees. Also, are you carrying too high balance of a balance in your checking account? Work with your accountant and take a look at your cash flow to see if some of that idle money can be earning interest elsewhere.

9. Trim your travel budget (if you still have one). Telephone and/or Video Conference will save you tons of cash. Also, are the seminars and conferences you attend every year really paying off? Maybe attending 2 instead of 4 will reap the same benefits.

10. Renegotiate contracts. Bring in service providers (telephone, software, etc,) and consultants to discuss current contracts and reduce fees. Take a look at your leases (office equipment, rent, etc.). Also, are you taking full advantage of any “hidden deals” and/or discounts? Have you been paying attention to the invoices in an effort to avoid “overcharges”? Take advantage of the economic downturn. No one wants to lose a customer at this point. Where appropriate, bring other providers in to bid for your business. Caution: don’t hire them simply because they are cheap!

11. Tax strategies. If you invest a lot in equipment and are incurring 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 may also result in your business qualifying 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 would be to set aside 5% – 10% of all your total expenses for unforeseen circumstances. Keep in mind, 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 spoken to your Insurance Rep in a while, now would be a good time. You should be reviewing your policy every six months anyway. A slight change in your workforce level can have a significant impact on the employer (and employee) is your contract coming up for renewal? Can you break the contract without incurring any fees? You may be able to find a good deal out there without sacrificing coverage.

14. Conduct annual invoice audits. Look closely at the invoices received from your vendors. If you don’t have a good system for monitoring the invoices before they are paid, you may be surprised at the number of duplicate or erroneous payments that can occur. An extra “0” added to a $1,000 invoice results in a $10,000 payment and a $9,000 mistake. Incentivize your employees when they discover these errors. For example, if they recover monies, split it with them. It’s a “win-win” deal!

15. Go after abandoned customers. If a competitor closed its doors, that should spell “O P P O R T U N I T Y”. The customer may be cutting back, but when things get better or they find a new job, they will be back. You will want to make sure 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. Territories once shunned (especially overseas) now deserve a second or third look. Again, get ideas from your employees.

17. Stay involved in your community. Don’t cut back on your sponsorship of community events and charitable donations. The money spent on the uniforms for the Little League Baseball team is “big deal”. People remember this stuff. Those people are potential customers or good referral sources. Actually, its worth much more than the tons of money you spent for the sign at your local Major League Baseball stadium. You know…the one that nobody notices!

18. Do you twitter? Do you have a presence on the social networking sites? Yes, I do mean Facebook, Twitter, MySpace, etc. Are your employees set up on LinkedIn? Even if you are a “Mom and Pop” type businesses, consider paying one of your tech savvy employees 15 or 20 cents extra a week to post updates and monitor these sites for you if you do not have the “know how.”

19. Part-time and Independent Contractors. Before you consider laying off, explore the possibility of reducing hours or changing the status of an employee to “Independent Contractor”. The employees will still appreciate having an income and, at the same time, you will save money on payroll taxes and/or health insurance contributions you were obligated to.

20. Finally…be honest with employees. Don’t tell them today things are great, and then tomorrow start laying off. On the other hand, if things are really tough, let them know. If you build an honest relationship and take the time to let you know how much you appreciate their effort, they will “go to bat” for you during the tough times. If you do have to resort to laying them off, they will understand even if it hurts. Chances are, if you have implemented the other 19 strategies mentioned her and made them an integral part of your company’s culture, your employees will be the ones saving your company from going under in an economic downturn.

Source by Donald Harper