Business Health Comes Before Jobs
Executive Roundtable is a weekly column by TEC Worldwide, an international organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help each other solve problems in a round-table session. The following questions and answers are summaries of discussions at recent TEC meetings in Southern California.
Question: I run a small service business that has done well for many years. For the first time, I’m losing money and probably should lay some people off to reduce expenses. But it took me years to build my staff. I’m afraid that I won’t be able to hire them back when the economy turns around. I can afford to sustain moderate losses for a while but may have to max out my credit line to do so. Should I hold onto my good people and bite the bullet, or should I cut back and minimize my losses?
Answer: During an economic downturn, every company has to incur the painful process of cutting costs. Your loyalty to your staff is commendable, but the health of your business should come first.
Assuming that survival hasn’t become an issue, there are several areas to consider when confronted with this type of decision. From an operational standpoint, would cutting back on staff affect your quality of service, delay response time or have any other negative effect on your customer base? When business drops off, the last thing you want to do is give customers a reason to go elsewhere.
What is your competition doing? Have they been forced to cut staff or are they, too, attempting to bite the bullet? If they’re laying off personnel, it may not be as hard as you think to rehire good people when the economy turns around.
Internally, have you considered cutting costs in other areas? Can you renegotiate your lease, extend payables or find other ways to free up cash? Have you sought ways of increasing revenue through related products or services?
Would your employees accept a rollback in salary or hours? Might some consider taking an unpaid sabbatical?
Finally, what will several months of losses do to your balance sheet over the long term? And what happens if the business doesn’t pick up as you expect? Will the losses push your company to the brink? Can you hack and slash quickly enough to save the business should you reach the point of no return?
If you insist on trying to ride it out, Arnold Zane, president of Energy Club in Pacoima, recommends implementing an initial rollback to minimize your losses and shift people’s thinking.
“You can cut overhead and staff expense without necessarily laying people off,” he says. “For example, You can institute wage and salary freezes, or go to rolling four-day weeks. But you have to find a way to get people’s attention and send the message that it’s no longer business as usual.”
Seth Krugliak, chief executive of Five Guys Named Moe in North Hollywood, seconds the idea of getting people’s attention. He also recommends making them part of the solution.
“Call a companywide meeting and let everyone know they are responsible for figuring out ways to get through these tough times,” he says. “Then, empower employees at all levels to get the job done. Let people know you are trying to stand up for the team, but that in order to make it work, they have to pull together and get behind you.
“At the same time, you need to set a limit on how much loss you will sustain. Reevaluate your situation in three or six months and see where you stand. If you start to hemorrhage red ink and the business doesn’t come back, then you have to make some drastic cuts. There’s a lot to be said for keeping your people if you can afford it. But if you go out of business, nobody has a job. Survival is always your first priority.”
Phyllis Murphy, CEO of Burbank-based P. Murphy & Associates, suggests looking at reorganizing your sales staff in order to maximize their talents and increase revenue.
“Review your salespeople one by one and identify the hunters [those who thrive on developing new business] and the farmers [those who do better at taking care of existing accounts]. If a salesperson doesn’t excel in one of these two areas, either transfer them to another job or move them out of the company altogether. Salespeople get paid to produce results.”
Ted Alred, president of Ontic Engineering & Manufacturing in Chatsworth, sounds a more cautionary note.
“My golden rule is to borrow for growth, never to cover losses,” he says. “I believe in doing whatever you have to do to break even and stay in reasonable financial health. That way, when the economy turns around and business picks up, you can borrow the money for sign-on bonuses and other incentives to pull the good employees back. I understand your reluctance to let good people go. But you’ll get a lot more bang for your bucks by using the money to fund growth rather than supporting losses that could be avoided.”
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If there is a business issue you would like addressed, contact TEC at (800) 274-2367, ext. 3177. To learn more about TEC, visit https://www.teconline.com.
