Making the Tough Decisions

It’s 2009, and every business owner is facing some

of the toughest decisions they have ever had to face since starting

their own business. We’re now in survival mode as we try and insulate

ourselves from the unpredictable storm that is our economy. Many of us

have panicked a little (or a lot) and are now trying to breathe and

adequately assess next steps. While a good deal of our focus may be

toward sales, business development, material costs, and the like, at

some point, our attention turns to human resources expenses—our staffing

level and the cost it carries. So how do you approach a decision about

the lives of those that contributed to your success? In short, not

easily.

Before Cutting Staff

Reducing

compensation across the board is one way, albeit a painful way, to have

a direct, long-term impact. Reducing pay for all employees by some fixed

percentage (a maximum of 20%) can be done in firms where the current

staff level is maxed out and performing optimally and a reduction in the

workforce would only serve to burn out everyone that remains. Instead,

keeping the staff intact, but paying them less, can have a desirable

result. For a tight group, reducing compensation may go over slightly

better than letting some of them go to the unemployment line. Bonus

reduction or elimination is also a good area to consider. Lastly, having

principles forgo pay or bonuses has been gaining steam as a way to save

money.

Other ways to reduce expenses include reducing

employee benefit coverage levels. Restructuring your insurance plans or

changing carriers may gain you some savings, as everything is negotiable

in this economy. There is no need to wait for renewal time, as you can

leave your present carrier whenever you choose. Reducing the percent of

cost the company covers is an option, but not a good one as employees

may not be able to handle this added financial burden with ease.

What to Consider

If these

expense reductions don’t achieve the savings you had hoped for or

needed, look at the staff you employ and how reducing force can help

your business survive. As you assess this option, consider the expense

associated with each terminated employee. Things like legal fees to

assemble separation agreements, unemployment insurance costs, as well as

optional benefits such as severance and outplacement services are all

expenses that can rapidly add up. It’s therefore critical to look at

these costs carefully or you run the risk of realizing far lower

savings, maybe to the point of regretting letting go of one or two of

those people. On the flip side, if you do not accurately assess your

business needs, you may have to have a second round of layoffs to

achieve your
savings goal.

When it comes to cutting staff, make decisions

based on individual skill, company future viability, cohesiveness of

team, and overall talent. Avoid emotion to the best of your ability. The

more emotional you are about deciding who stays and who goes, the more

you might adversely impact the future of your firm. Now is the time to

look at facts, at RO I, and at the impact points from the perspective of

your business. To that end, there are some things to consider as you

assess your options more objectively. With careful assessment, you can

insure that the positions (not people) selected to be eliminated are the

right ones. A good gauge is to think back to when you were 25% of your

present size.

Most likely, you had a smaller staff and most

employees were responsible for doing a little of everything. When

consolidating staff, restructure with a similar cast of characters and

capabilities. You may identify who to let go on the basis of what

functional areas you have the least amount of need for. An example would

be after-sales support. These positions exist only as a function of the

success of the sales team’s efforts. In many cases, an organization can

(and should) find talent internally that can sell and support, as needed.