How to survive tough economic times without laying off employees.

As a business owner or manager, over the past 18 months you have been faced with shrinking profit margins and fewer customers lining up to buy what were previously considered “sexy products or services.” The question of how to survive these seemingly difficult times often leads to answers like… “we need to lay off more workers” or “… let’s close the office located in Suburbia.”

The problem with this approach is… when the economy picks up, you’ll be looking to rehire the same people you fired 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 “hit the job.”

Laying off employees during economic downturns should be a “last resort.” Well, at least not until you’ve explored all other avenues, that is, trying the strategies I’ve outlined below. I will even go a step further. If you’ve already implemented some (if not all) of these strategies, or made them an integral part of your company’s operating culture, chances are you haven’t canceled your long-planned vacation to the Bahamas.

Also, while these key strategies can be adopted by companies regardless of their size, they are primarily targeted 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. However, you can find out how your business classifies as defined by the Small Business Association (SBA) by visiting http://www.sba.gov

survival strategies

1. Schedule weekly budget meetings. The assumption is that you have a budget. You might be surprised how many small businesses (a) don’t spend the time developing 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 managers call via conference calls if you have satellite offices in various parts of the country or around the world. Make sure they are prepared with arguments to justify the budgets of their various departments and plans for how to reduce costs.

2. Establish an Earnings Committee/Workgroup. This must be employee driven. Challenge them to contribute ideas, but more importantly, reward them for good ideas that actually get implemented.

3. Refresh your performance reviews. Are the objectives of the employees (especially senior managers) aligned with the objectives of the company (ie increase sales, reduce expenses, improve customer service)? Are the goals more than just rhetoric or “feel good” words? In a nutshell, are the goals specific enough and…can progress really be “MEASURED”?

4. Review your “Billing” rates. Profits are quickly consumed by idle inventory and late paying customers. Incorporate these items as part of your budget review process. Work closely with your vendors to reduce box packs, or just get rid of items that don’t sell! Offer to settle your delinquent customers or arrange for payment in installments of outstanding accounts receivable. Getting something is better than nothing in tough economic times.

5. Trust the influence you have with your suppliers. Partnerships need to be about more than “talk.” Negotiate better conditions, that is, try to increase the “days to pay” of your invoices. Even taking 5 extra days per month on a business basis worth $1 million per year can earn your business more than $3,000 in additional interest, after taxes. That’s real money!

6. Change your Payroll Cycle. If you are on a weekly pay cycle, consider moving to bi-weekly. If you are paying biweekly, consider moving to biweekly (15 and 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” bandwagon early. Be more energy efficient. Who knows… you may even qualify for tax breaks. Get employees in the habit of turning off lights when leaving 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. Set up a meeting right away. You’ll not only build a critical relationship (one that many managers neglect), but you’ll also ask them for ideas. They have the advantage of seeing what works (or doesn’t) for other companies, so feel free to pick their brains. Best of all… it’s free advice! Discuss things like…putting extra money into 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 “world-changing,” it’s still money earned without doing anything different. If there is a limit to the number of checks that can be written on that account, look into the fees the bank may 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 take a look at 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). Phone and/or video conferencing 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 get the same benefits.

10. Renegotiate contracts. Bring in service providers (phone, software, etc.) and consultants to discuss current contracts and reduce rates. Take a look at your lease agreements (office equipment, rent, etc.). Also, are you taking full advantage of “hidden deals” and/or discounts? Have you been paying attention to bills in an effort to avoid “overcharging”? Take advantage of the economic downturn. Nobody wants to lose a customer right now. Where applicable, invite other vendors to bid on your business. Attention: do not buy them simply because they are cheap!

11. Fiscal strategies. If you invest heavily in equipment and are incurring high business equipment taxes Explore states with business-friendly tax codes. There are benefits to establishing an “equipment cargo” business in a low-tax state. Business losses and cancellations 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 5-10% 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 just 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. Still, 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). Are you about to renew your contract? Can the contract be terminated without incurring costs? You may be able to find a great deal without sacrificing coverage.

14. Conduct annual invoice audits. Take a close look at the invoices received from your suppliers. If you don’t have a good system for monitoring invoices before they’re paid, you’ll be surprised how many duplicate or erroneous payments can occur. An extra “0” added to a $1,000 invoice results in a $10,000 payment and a $9,000 error. Incentivize your employees when they discover these errors. For example, if they get money back, split it with them. It’s a “win-win” deal!

15. Go after abandoned customers. If a competitor closed its doors, that should mean “OPPORTUNITY.” The client may be cutting back, but when things pick up or he finds a new job, he’ll be back. You’ll want to make sure you’re 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 shunned (especially abroad) now deserve a second or third look. Once again, get ideas from your employees.

17. Stay involved in your community. Don’t reduce your sponsorship of community events and charitable giving. The money spent on minor league baseball team uniforms is a “big deal.” People remember these things. Those people are potential customers 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 Baseball stadium. You know… the one that nobody notices!

18. Do you tweet? Do you have a presence on social media? Yes, I mean Facebook, Twitter, MySpace, etc. Are your employees set up on LinkedIn? Even if you’re a “mom and pop” type of company, 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. Part-time and independent contractors. Before considering layoff, explore the possibility of reducing hours or changing an employee’s status to “Independent Contractor.” Employees will still appreciate having an income while saving money on payroll taxes and/or health insurance contributions that you were required to pay.

20. Finally…be honest with the employees. Do not tell them that things are going well today and that tomorrow you start firing. On the other hand, if things are really difficult, let him know. If you build an honest relationship and take the time to let them know how much you appreciate their effort, they will “bat” for you during the 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 she mentioned and made them an integral part of your company culture, your employees will be the ones keeping your company from sinking into an economic downturn.