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20 Small Business Survival Strategies
How to survive tough economic times without laying off employees.
As a business owner or manager, you’ve experienced declining profits over the past 18 months and you thought “products or services”. The question of how to survive these seemingly difficult times usually results in answers like…”we’ll have to lay off more workers” or “…let’s close the suburban office”.
The problem with this approach is…when the economy improves, you’ll look to rehire the people you laid off in the first place. Unfortunately, you may find that they have moved on to other jobs, returned to school, or started their own business. You 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”.
Laying off employees should be a “last resort” during economic downturns. Well, not until you’ve explored all the other avenues, meaning I don’t try the strategies described below. I will go one step further. If you’ve already implemented some (if not all) of these policies or made them an integral part of your company’s operating culture, chances are you won’t have to cancel your long-planned vacation to the Bahamas.
Additionally, although these key policies can be adopted by businesses regardless of size, they are primarily geared toward small businesses. The definition of a small business can vary by industry, and most importantly, it can depend on the personal assessment of the business owner. However, you can find your business classification as defined by the Small Business Association (SBA) by going to http://www.sba.gov.
1. Schedule of weekly budget meetings. The assumption is that you have a budget. You’d be surprised how many small businesses either (a) don’t spend time developing a proper budget or (b) don’t have a regular budget review process. Use meetings to challenge (and reward) managers and supervisors to find ways to reduce costs in their respective departments. Call managers via conference call if you have satellite offices in different parts of the country or globally. Make sure they are prepared with arguments to support their various departments’ budgets and plans on how to cut costs.
2. Establish a profit committee/task force. It should be employee-driven. Challenge them to contribute ideas but, most importantly, reward them for good ideas that are actually implemented.
3. Improve your performance reviews. Do employee (especially senior managers) goals align with company goals (ie, increase sales, reduce costs, improve customer service)? Are the goals more than just rhetoric or “feel good” words? Simply put, goals are specific enough and… can you really “measure” progress?
4. Review your “turnover” ratios. Profits are quickly eaten away by idle inventory of late-paying customers. Include these items as part of your budget review process. Work closely with your vendors to reduce case packs or get rid of items that don’t sell! Offer to settle with your late-paying customers or arrange to pay in installments on those who are in arrears. In tough economic times it is better to get something than nothing.
5. Rely on the leverage your vendors have. Partnerships should be more than just “discussions.” Negotiate better terms, i.e. try to extend the “due days” for your invoice. Taking an extra 5 days per month based on a business valued at $1 million a year, your business could earn over $3,000 in interest after taxes. That’s real money!
6. Change your payroll cycle. If you are on a weekly payroll cycle, consider switching to a bi-weekly cycle. If you pay bi-weekly, consider switching to semi-monthly (15th and 30th). Do a cost-benefit analysis to make sure it makes sense for your business. You can reduce payroll processing costs which can be significant especially if you have a large number of employees.
7. Get on the “green” bandwagon early. Be 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 something to consider. 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 used by home electronics is used when the products are turned off. I imagine this applies to office equipment as well.
8. Meet your banker. Set up a meeting right away. Not only will you build a serious relationship (which many managers overlook), but ask them for ideas. Feel free to pick their brain as they have the benefit of seeing what works (or doesn’t) for other businesses. Best of all… it’s free advice! Money market accounts, CDs etc. Discuss things like putting extra cash into See if you can move your operating account to an interest-bearing checking account. While the interest earned isn’t “earth-shattering,” it is money earned for nothing. If there is a limit on how many checks can be written in such an account, analyze the fees charged by the bank versus the interest that can be earned. Pay bills electronically and offer direct deposit to your employees to reduce check writing fees. Also, are you keeping too much 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 could be earning interest elsewhere.
9. Trim your travel budget (if you still have one). Telephone and/or video conferencing will save you a lot of cash. Also, are the seminars and conferences you attend every year really paying off? Perhaps attending 2 instead of 4 would provide the same benefits.
10. Renegotiate contracts. Bring in service providers (telephone, software, etc.) and consultants to discuss existing contracts and reduce fees. Look at your leases (office equipment, rent, etc.). Also, are you taking full advantage of any “hidden deals” and/or discounts? Have you looked at receipts in an effort to avoid “overcharging”? Take advantage of economic downturns. No one wants to lose a customer at this stage. Where appropriate, get other providers to bid for your business. Caution: Don’t hire them just because they’re cheap!
11. Tax Policy. Explore states with business-friendly tax codes if you invest heavily in equipment and pay high business equipment taxes. There are advantages to setting up an “equipment holding” company in a low tax state. Business losses and write-offs may qualify your business 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 “Reserve”. In other words, keep a “contingency” or “narrow” account as a line item in your budget. A good starting point is to set aside 5% – 10% of your total expenses for contingencies. Remember, if we could predict the future, we would all be millionaires. It is simply good business strategy to include the “reserve” account as an “expense” item.
13. Look at your health insurance benefits. If you haven’t talked to your insurance representative in a while, now would be a good time. You should still review your policy every six months. A small change in your staffing levels can have a significant impact on the employer (and the employee) Is your contract coming up for renewal? Can you break the contract without charge? You can get a good deal there without sacrificing coverage.
14. Conduct an annual invoice audit. Pay close attention to receipts from your vendors. If you don’t have a good system in place to monitor invoices before they’re paid, you’ll be surprised at the number of duplicate or incorrect payments. Adding an extra “0” to a $1,000 invoice results in a $10,000 payment and a $9,000 delinquency. Encourage your employees when they find these errors. For example, if they collect money, split it with them. It’s a “win-win” deal!
15. Follow up with abandoned customers. If a competitor closes its doors, it should spell out “OPPORTUNITY”. A customer may be cutting back, but will come back when things get better or they get a new job. You want to make sure you’re in the right position to fill the void left by your competitor.
16. Explore new sales markets. As strange as it may sound, economic downturns are the perfect time to look for opportunities in new markets. Territories that were once distant (especially overseas) are now second or third nature. Again, get ideas from your employees.
17. Get involved in your community. Don’t skimp on sponsorship of community events and charitable donations. The amount of money spent on Little League baseball team uniforms is “huge.” People remember this. Those people are potential customers or good referral sources. Actually, it’s worth a lot more than what you’d spend on a sign at your local Major League Baseball stadium. You know… nobody notices!
18. Do you do twitter? Do you have a presence on 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” 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 if you don’t have the “how to”.
19. Part-Time and Independent Contractors. Before you consider layoffs, explore the possibility of reducing hours or changing the employee’s status to “independent contractor.” Employees will still appreciate the income, and at the same time, you’ll save money on payroll taxes and/or health insurance contributions you were otherwise obligated to make.
20. Finally…be honest with employees. Don’t tell them today that things are great, and then start taking off work tomorrow. On the other hand, if things are really difficult, let them know. If you build an honest relationship and take the time to let them know how much you appreciate their efforts, they will “go to bat” for you when times get tough. If you have to resort to removing them, they will understand even if it hurts. Chances are, if you implement the other 19 strategies she mentions and make them an integral part of your company’s culture, your employees will be the ones who save your company from a financial meltdown.
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