2009 Small Business Guide
small business
Avoiding small business layoffs

For most small businesses, personnel-related costs are among the most significant, and with sales remaining flat at many businesses, it's tempting to look to layoffs as a way to cut costs.

Even so, using other tactics to keep personnel costs in line offers several tangible benefits. Most immediately, you limit the morale-busting impact of a layoff, says Jason Zickerman, president and chief executive officer with The Alternative Board in Denver.

Later on, when the economy picks up -- which it will -- you won't have to bring in new employees to replace those you let go. "People underestimate the time, cost and energy required to hire and train people," Zickerman adds.

Finally, layoffs can prompt concerns about your firm's viability. Finding alternative ways to save money can help you avoid panicky business partners. 

Keeping it real with employees
As a starting point, determine just how much you need to trim costs, says Mark McCooey, owner of SEI Industries, a Vancouver, British Columbia-based manufacturer of products for the aviation and firefighting industries.

Next, you want to discuss the situation and communicate options to your employees. While many business leaders hesitate to talk about business conditions with employees, most already are nervous, says Bill Conerly with Conerly Consulting LLC in Lake Oswego, Ore. "You might as well address the issue head on."

Distributing a summary-level financial statement also helps ensure that "the staff is in touch with reality. Otherwise employees sense something is wrong, but don't know what," says Ed Boswell, chief executive officer with The Forum Corp., a Boston-based consulting firm.

“A crisis can bring a company together or tear it apart.”

In late spring of 2008, SEI's sales began dropping. After some number-crunching, McCooey figured he would have to cut personnel costs about 20 percent. McCooey then talked with employees. Without getting into dollar figures, he let them know how the business was doing and offered options: layoffs, or switching everyone to a four-day workweek.

Sharing the pain
Presenting options, if possible, is key, McCooey says. Simply mentioning layoffs without talking about solutions will just scare employees, some of whom will look for other jobs.

McCooey also let employees vote on the potential solutions. "They all voted to share the pain," and move to four-day weeks, he says. As a result, SEI was able to cut expenses, yet retain its employees and their knowledge.

Most employees at Wheat Ridge Cyclery in Wheat Ridge, Colo. also have moved to a four-day workweek, with benefits, because of a drop in sales, says Ron Kiefel, general manager and an Olympic bronze medalist. Like McCooey, Kiefel wanted to keep his staff as intact as possible and not lay off anyone.

Kiefel also kept his staff of 25 informed about the business. "In my role, it's important to be positive but truthful," Kiefel says. Along with maintaining morale, this lets Kiefel tap into employees' ideas and energy to boost revenue and reduce expenses. For example, Wheat Ridge offers free tune-ups to customers six months after they've bought a bike.

Employees have been calling customers to let them know about the service. Those who come in often see other items they'd like to buy. Kiefel also is having employees work on minor remodeling and organizational projects that are difficult to get done when customer traffic is brisk. Once these projects are completed, Wheat Ridge may be able to get by without additional hires when sales pick up.

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