20 survival strategies for small businesses
How to survive tough economic times without laying off employees.
As a business owner or manager, for the past 18 months you have faced shrinking profit margins and fewer customers lining up to buy your “popular products or services” than previously thought. The question of how to survive these seemingly difficult times often leads to responses 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 recovers, you will be looking to rehire those same people you laid off in the first place. Unfortunately, you may find that they have moved on to other jobs, gone back to school, or started their own businesses. So you’ve put yourself in a situation where you now have to hire and train a new employee or hire a more experienced worker who can “go to work.”
Laying off employees during economic downturns should be a “last resort.” Well, at least not until you’ve explored all the other avenues – that is, try the strategies I’ve outlined below. I’ll even go one 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 Bahamas vacation.
Also, although these key strategies can be adopted by companies regardless of their size, they are primarily aimed at small businesses. The definition of a small business will obviously vary by industry and, more importantly, may depend on the personal assessment of the business owner. Regardless, you can find out the classification of your business as defined by the Small Business Association (SBA) at 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 (a) don’t spend time developing an adequate 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 managers call via conference calling if you have satellite offices in various parts of the country or around the world. Make sure they are prepared with arguments to justify their various department budgets and plans on how to reduce costs.
2. Establish a Benefits Committee / Task Force. This must be driven by the employees. Challenge them to contribute ideas, but more importantly, reward them for the good ideas that actually get implemented.
3. Refresh your performance reviews. Are the objectives of employees (especially senior managers) aligned with the goals of the company (ie, increase sales, reduce expenses, improve customer service)? Are the goals more than rhetoric or words to “feel good”? In short, are the goals specific enough and … can you really “MEASURE” progress?
4. Review your “turnover” ratios. Profits are quickly eaten up by idle inventory and late paying customers. Incorporate these elements as part of your budget review process. Work closely with your suppliers to reduce box packs or just eliminate unsold items! Offer to settle with your clients who pay late or arrange installment payments on outstanding accounts receivable. Getting something is better than nothing in tough economic times.
5. Trust the leverage you have with your suppliers. Associations should be more than just “conversations.” Negotiate better terms, that is, try to increase the “days to pay” your bills. Even taking an additional 5 days a month on a business basis valued at $ 1 million a year can earn you additional interest for your business of more than $ 3,000, after taxes. That is real money!
6. Change your payroll cycle. If you are on a weekly payroll cycle, consider switching to biweekly. If you pay bi-weekly, consider switching to bi-weekly (15-30). 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 fairly large employee base.
7. Get on the “green” train early. Be more energy efficient. Who knows … you may even qualify for tax breaks. Get employees into the habit of turning off the lights when they leave conference rooms. Installing sensors for infrequently used rooms or areas 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 used by household electronics is consumed while the products are turned off. I imagine this applies to office equipment as well.
8. Meet with your banker. Schedule a meeting right away. Not only will you be building a critical relationship (one that many managers neglect), but you will also ask them for ideas. They have the advantage of seeing what works (or not) for other companies, so feel free to choose your brain. 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 trading account to an interest-bearing checking account. While the interest earned may not be “devastating,” it is still money earned without doing anything different. If there is a limit on the number of checks that can be written to that account, look at the fees the bank can charge vs. the interest that can be earned. Pay bills electronically and offer direct deposit to your employees to reduce check writing fees. Also, do you have too high a balance in your checking account? Work with your accountant and watch your cash flow to see if some of that idle money can earn interest elsewhere.
9. Cut your travel budget (if you still have one). The telephone and / or video conferencing will save you a lot of cash. Also, are the seminars and conferences you attend each year really paying off? Perhaps attending 2 instead of 4 will get the same benefits.
10. Renegotiate contracts. Bring service providers (phone, software, etc.) and consultants to discuss current contracts and lower fees. Take a look at your leases (office equipment, rental, etc.). Also, are you taking full advantage of “hidden offers” and / or discounts? Have you been paying attention to bills to avoid “surcharges”? Take advantage of the economic recession. Nobody wants to lose a customer right now. When appropriate, bring in other vendors to bid on your business. Caution: don’t buy them simply because they are cheap!
11. Tax strategies. If you invest heavily in equipment and are incurring high taxes on business equipment, explore states with business-friendly tax codes. Setting up a “team tenure” business in a low tax state has its advantages. Business losses and write-offs can also qualify your business for various tax exemptions 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 reserve between 5% and 10% of all your total expenses for unforeseen circumstances. Keep in mind that 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 representative in a while, now would be a good time. Regardless, you should review your policy every six months. A slight change in the level of your workforce can have a significant impact on the employer (and the employee). Is your contract renewal coming up? Can you break the contract without incurring costs? You may be able to find a good deal without sacrificing coverage.
14. Conduct annual audits of invoices. Take a close look at the invoices received from your suppliers. If you don’t have a good system for monitoring invoices before they are paid, you may be surprised at the number of duplicate or erroneous payments that can occur. An additional “0” added to a $ 1,000 bill results in a $ 10,000 payment and a $ 9,000 error. Encourage your employees when they discover these mistakes. For example, if they get money back, divide it with them. It’s a “win-win” deal!
15. Go after abandoned customers. If a competitor closed their doors, it should spell out “CHANCE”. The client may be cutting back, but when things improve or they find a new job, they will come back. You want to make sure you are well positioned to fill the void left by your competitor.
16. Explore new sales markets. Oddly enough, an economic downturn is the perfect time to look for opportunities in new markets. Territories that were once rejected (especially abroad) 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 minor league baseball team uniforms is a “big deal.” People remember these things. Those people are potential clients or good referral sources. It’s actually worth a lot more than the tons of money you spent on the sign at your local Major League stadium. You know … the one that nobody notices!
18. 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’re a “mom and dad” 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 the “know-how.”
19. Independent and part-time contractors. Before considering termination, explore the possibility of reducing hours or changing an employee’s status to “Independent Contractor.” Employees will still appreciate earning, and at the same time, you will save money on payroll taxes and / or health insurance contributions that you were obligated to do.
20. Finally … be honest with employees. Don’t tell them that things are fine today and tomorrow they will start saying goodbye. On the other hand, if the going gets really tough, let them know. If you build an honest relationship and take the time to let them know how much you appreciate their effort, they will “come to bat” for you during tough times. If you have to resort to firing them, they will understand even if it hurts. Chances are, if you’ve implemented the other 19 strategies listed above and made them an integral part of your company culture, your employees will be the ones to save your company from sinking into an economic downturn.