In mid-June I heard a report on the radio regarding the American Automobile Association (AAA). They stated that the number of roadside calls AAA is getting, due to vehicles running out of gas while on the road, has more than doubled from this time last year. The not-so-surprising explanation? Skyrocketing fuel prices.
I’ve noticed the same thing in the business world. As the impact of the economy and our undetermined political future causes concern, I’m seeing the movers, shakers and decision makers becoming still or indecisive in their business practices. In times of economic strain and an uncertain future, fear seems to have a paralyzing effect. Rather than spending the money that must be spent, be it on fuel for our car, or services for our business, some people are hunkering down and doing nothing…hoping that somehow this storm will pass them by.
Unfortunately that strategy doesn’t work. It leaves those people stranded on the side of the road while others, who accept the reality, move forward. Jack Hinsche, Managing Partner of the accounting firm Windes & McClaughry explains, “Peoples’ perception of this economic ‘recession’ has lead to cost control and managing of the bottom-line.” However, these cost-cutting decisions are not always logical. Hinsche notes that his firm is feeling the effect. “Collections and follow-up have become necessary. A typically prompt payment is being stretched to 90 days and more.” Hinsche continues, “People are pushing to the inevitable.”
Kenneth Keller, President of Renaissance Executive Forums, sees a better choice: Make the decision to spend money even when times are tough. Keller consults and trains executives and business owners. He observes “I find the economy to be okay for people who know how to use it as an opportunity.” At his company, “We are choosing to grow, not shrink. I have made the decision not to participate in any economic slowdown.” Both Hinsche and Keller recognize marketing as a key part of their plan to keep business moving. Hinsche comments on the necessity of “investing in core values.” Beyond marketing, his firm is committed to keeping with its “people first” culture. This means budget cuts have not been made in the areas of training, coaching or professional development. This is a particularly noteworthy choice; when you recognize that people are essential to a business just as fuel is essential to a vehicle…without them you’ll have no movement.
Safety in the Workplace
In turbulent times, a first step in managing your staff and your business is to create a safety net. Employees are under just as much stress and strain as their bosses, but often with far less to fall back on when times are tough. This is not the time to evoke panic. Keller notes, “For those that rely on others to generate an income (employees of a company), it is a scary time.”
Cutting out ancillary services is appropriate when it’s necessary to stave off reductions in the workforce, but when done simply to maintain the same profit margin, consider the message it sends to staff. If you are transparent with this decision making, you’re effectively telling your staff that they matter less than the level of profit for the business. This is a risky maneuver at best. If you do not tell them, the situation is liable to be even worse. Staff may assume this is a “last resort” and concern themselves with the possibility of layoffs or cutbacks. The snowballing effect as staff becomes concerned with job loss or salary cuts includes a drop in teamwork, lowered morale and reduced productivity; all of which undermine the intended goal of insulating profits and maintaining the status quo.
In building a safety net, it’s essential to communicate with your entire staff about the status of the company during these challenging economic times. Tell them what the impact has been on the bottom line, explain the company’s immediate and long term plans, and make clear the reasons for those plans. Perhaps the company can retain the full workforce without change as long as sales don’t drop beneath a particular threshold. Or, maybe you know which departments are likely to experience layoffs first, and which ones last. In explaining the situation, keep a positive outlook, but be honest and realistic. Keeping your staff informed empowers them to help, and allows them to be a part of the solution.
Profits now vs. Profits later
It is anticipated that during tough times profits will go down, but trying to stave off any decrease of profitability is likely to come with other significant costs. The importance then is having a vision and looking toward the future. Know that how you handle it now, will determine what comes next. Where do you want your company to be when the tough times are past? Trying to play catch up with what you’ve neglected or being poised and ready to move as opportunity strikes? Making the tough decisions, and the right ones at this time, is critical.
In evaluating your business expenses, two questions to explore are:
- What do I need to spend money on?
- How does it benefit me (my organization)?
While many will turn to “discretionary” spending as the first place to make cuts, it may be necessary to re-evaluate what is truly discretionary. Services to grow or maintain the business – via employee development or marketing - may be of greater significance than originally thought. Cutting costs in these areas will most likely cause business to slow further, and staff to feel more at risk.
Making the Cuts
Unfortunately, it’s easy to make cuts when tangible benefits are difficult to measure. Examine company spending patterns and any available metrics or data that offer evidence as to the value of each expense that you are looking to cut. As you perform the cost-benefit analysis, keep your vision broad. Reducing some expenditures will have minimal impact on productivity and morale, while others may have an unknown result or undesired consequence and should be done as a last resort only. “Marketing and employees are typically an area people make the cut first.” warns Hinsche who sees this as a mistake. He recommends instead that businesses “reduce expenses in occupancy costs including travel and administrative expenses.” A flexible work schedule or telecommuting are options to consider that fall within this plan – staff benefit from reduced travel costs, the business from reduced overhead.
In selecting the best plan for your company, be creative. Brainstorm with colleagues, consider several alternatives, and perhaps, if it’s in the budget, consult with a business advisor for an outside perspective of the situation. Remember even short term decisions have a long-term impact.
Outshine the Competition
While it may be tricky determining the right path for your business, consider the rewards. A forward-thinking attitude will lead others to you from the outside. You stand to outshine your competition who sits idly by, and position yourself to grow as you capture their talent and their customers.
Making thoughtful decisions and planned actions in this turbulent time has profound benefits. In accepting and managing the challenges before you and communicating them with your staff, you demonstrate leadership and vision. You stabilize your staff, retain your top talent, strengthen productivity and keep teamwork high.
Yes, the road ahead is rough – but by keeping business and employee services full, like your car’s gas tank, you will get where you need to go.
