Sales are down, you’re struggling to get demand back up and to top it all off it increasingly looks like we are heading for a global recession.
Often when times are hard, some business owners find themselves asking this question:
“Should I be laying off my employees?”
Some business owners
Well, to simply answer this question:
NO
But wait, hear me out first.
Yes, I acknowledge that when it comes to the subject of laying off, it can get a bit personal for me (having been laid off myself prior to starting this business).
Yes, I also acknowledge that staff salary and wages are often the highest expense that most businesses have to pay – and therefore often the first one that gets trimmed in a downturn.
Yes, I understand that businesses may feel like they don’t have enough work going around to justify the continued hiring of some of their employees.
But despite all that, I still firmly believe that laying off your employees should only ever be used as a last resort. Here’s why:
Your team is your business
I’ve said this before and I will keep repeating it again and again.
‘Your team is your business,’
Me – sounding like a broken record
Hiring a team member is not a decision to be made lightly. If you have hired them – then that means you know there is capacity within the business and that you fully intend for the business to grow.
Treat your employees well and they will treat your business even better. I’m sure many of you have heard of the saying:
‘Happy employees = happy customers,’
It is my closely held personal belief that business owners that prioritise their employees and the ones who command unwavering loyalty from their team members – who in turn, will deliver the best results for the business.
Laying off your valued team members in a recession is akin to shooting yourself in the foot. Or chucking out the engine in a car because it weighs too much. Difficult times are often where the business as a whole needs to band together and come up with new ideas to face the future.
Which brings me to my next point:
There are other expenses that can be cut
True – salaries are often the highest expense that your business will be incurring. But take a closer look , and you may find you are able to shave off an extra $10,000 a year or so from other, less obvious expenses. Some examples include:
Bank/overdraft/credit card fees
How much do you pay in bank fees every month? What is the monthly charge for your overdraft facility? Are you paying an interest on your overdraft?
Consider that fees-free banking services are widely available these days, why are you still spending money on the right to open a bank account? Granted – some types of business accounts allow you to utilise EFTPOS (electronic point of sales) services and cost more because of that.
Credit cards also cost money. Unless you are on a fees free credit package, you are still paying money simply for the right to use a credit card. And let’s not even get started on the exorbitant interest rates charged by credit card companies (that’s a WHOLE different article).
Overdrafts are nice to have if you need an extra bit of cash for unexpected events – but maintaining a credit card AND an overdraft may sometimes be a bit of an overkill. Also, like credit cards, they incur fees and unpleasant interest rates on balances owing.
To be perfectly honest, I have done books for clients who have bank fees ranging from $600 a year to $2,000 a year and the usual culprits are overdraft and credit card charges. If you are looking to cull expenses – these are the first ones you should be looking at.
Rental equipment/leases
Have you entered into a contract to lease equipment for the business? Do you have fancy assets that don’t really see much use? Do you have one of those fancy coffee machines that cost you like $150 a month to lease?
Yeah, you know what I’m talking about.
This point is pretty self explanatory. If you are renting assets which are not crucial to your business – they need to go.
Instant coffee still gives you caffeine. Best of all, it tastes like SAVINGS.
Monthly subscriptions
Every business (and household – I might add) has monthly expenses that go out every month. Some of these expenses are essential, like power, rent, telephone/internet bills and insurance. But on top of that, you have what I like to call ‘luxury’ monthly subscriptions like Netflix, software and fancy CRM solutions (I’m looking at you HubSpot!*).
*disclaimer - I’m actually a big fan of HubSpot - but being the cheapass accountant that I am, I’m still using their free package for my CRM work. One of these days I’ll subscribe! One day!
When the going is good, it is very easy to rack up monthly subscriptions. You may even think to yourself:
“What’s another $30 a month?,”
You – being cavalier with your finances
Thing is that, if you are subscribing to 5 things that cost $30 a month – that’s $150 dollars spent every month. In a year that’s $1,800 a year spent on subscriptions!
So yes,
Look at your monthly P&L report – look at what recurring expenses you have. Even the essential ones, because chances are you could sign up with cheaper power/internet providers or get better deals on insurance. When times get lean, you may be surprised that things you once thought were super necessary aren’t necessarily necessary anymore.
Ok,
You get the point. I could go on and on about trimming your expenses – but I’m sure you know more about your business than I do. So let’s not spend too much time on this point. Let’s get on to the last point in this article:
You need to talk to your team
One of the core values I hold dear is honesty and transparency.
To that end, I believe that businesses should be honest and transparent with their team members (because your team is your business remember?). What does being honest and transparent mean?
It means having regular, open discussions with them about the business, how it’s doing and your plans for the future. And yes, this even means sharing financial information about the business if it is relevant to them. If your business isn’t doing well, you owe it to your team to tell them about it.
Have a frank and honest conversation about the business situation. Ask for ideas from your team members on how all of you can work together to keep the business afloat. They may even agree to some form of reduced hours or wages just to tough it out until times get better. They may even have some excellent ideas you have never thought of to keep the business going.
Never take an adversarial approach with your team members – remember, they ARE your business. They have as much interest in seeing the business succeed as you do – so treat them with respect, honesty and transparency with regards to the business situation.
I have always believed that how you treat others reflects how you wish the world to treat you – so treat them the same way you would like to be treated.
By the end of the day, you may find yourself in a position where, after exhausting all available options, you have no choice but to lay off staff. If you have been honest and transparent with your team up to that point, at the very least, you can let them go with little to no hard feelings. It may suck, but at least when things get better you can still salvage your relationship with that team member you had to let go and they may even come back to re-join the team in the future.
To sum it all up my dear reader, you shouldn’t be laying off your team. There are always better ways and other things you can do to cut costs and keep your business afloat.
And remember, (even if I have said it repeatedly throughout the article):
“YOUR TEAM IS YOUR BUSINESS,”
Me – being a broken record again