This question may be one you don’t normally ask yourself.
Even if you’re convinced no recession is in sight, I’d like you to suspend your disbelief for a moment and consider the question.
More specifi cally, ask yourself the following questions:
If the economy tanked and tomorrow I knew that we had to cut at least $100,000 in expenses or go under, where might I fi nd reductions to equal this amount of money?
What if my sales were to drop by 20 or 30 percent tomorrow?
Could we survive? Where would we have to make cuts in our business to remain profi table?
With these questions in mind, here are a series of additional questions that will determine if you can pass the recession test:
Are there any unproductive or marginally productive employees who might be let go without any negative effect?
1.
SmallBusinessSP.indb 14
SmallBusinessSP.indb 14 2/27/07 9:53:27 AM2/27/07 9:53:27 AM
15 The Recession Test and Other Consciousness-Raising Tools
Are there employees who are marginally or moderately pro- ductive who can be retrained and become more productive?
Are there luxuries that your company has enjoyed in good times—free health club memberships for employees, an expensive offi ce lease—that you could do without if you had to?
Do you ever analyze what you might sell—a division, equip- ment, intellectual property—that would generate dollars without hurting the business?
During the past year, do you recall looking over the bud- get or an invoice and saying to yourself (or someone else),
“We’re really spending a lot on X”?
Do you neglect to review your employee benefi ts plans regularly and analyze ways in which you could be providing essentially the same major benefi ts for less cost?
Are you reluctant to place spending limits on nonessential (to the core business) items—offi ce supplies, holiday party—
and do you rationalize how these costs seem to rise annually?
When you buy products or services from a supplier, do you usually refrain from trying to negotiate a lower price?
It’s likely that most of you answered yes to some or even all of these questions. What you should be doing is asking yourself these questions consistently and doing something about at least some of them. The recession test is a test of whether you act on the cost-cut- ting possibilities before an economic downturn hits. Do you make the effort to analyze whether a given action should be undertaken right now, and if so, are you willing to do something about it?
The recession test, then, is nothing more than being consis- tently aware of these eight questions and determining:
If I were to take the action suggested right now, what would be better and what would be worse in my business?
2.
3.
4.
5.
6.
7.
8.
•
SmallBusinessSP.indb 15
SmallBusinessSP.indb 15 2/27/07 9:53:27 AM2/27/07 9:53:27 AM
Does the better outweigh the worse, not just in terms of dollars but from the perspective of the business’s reputa- tion, morale of employees, and process effi ciency and effectiveness?
Now I’d like to share with you how this test evolved, since its origins demonstrate why I believe it’s so valuable. During the last recession, our business was struggling, and we needed to cut operating costs. Like many small companies, we looked fi rst at salaries and ranked every individual in the company from biggest contributor on down. One individual became the obvious choice.
We had to make a number of tough cost-cutting decisions, and one of them was to lay off this employee. It turned out it was the right decision for the business. Other people in this person’s department had to take up the slack, since we didn’t hire some- one to replace him, but very quickly, things were running more effectively than before he left. With everyone pitching in and some changes to the work process in this department, things worked perfectly.
After this experience, I thought about why I had not fi red this individual fi ve years before, when I realized he wasn’t pull- ing his weight, he was unhappy with his job, and we really didn’t need him. Part of the problem was that I felt loyalty to him, since he was a long-time employee. Part of the problem was that I, like many small business owners, secretly believe that every employee is indispensable and that the sky will come crashing down if that person is gone.
Then I did some calculations. If we had eliminated this per- son fi ve years ago, we would have saved at least $150,000 in salary and benefi ts!
I’m not suggesting that you fi re people left and right in a quest to reduce costs. What I am asking you to do is imagine yourself in the middle of a recession and picture the actions you would take to survive that downturn. Thinking about these actions, ask
•
SmallBusinessSP.indb 16
SmallBusinessSP.indb 16 2/27/07 9:53:27 AM2/27/07 9:53:27 AM
17 The Recession Test and Other Consciousness-Raising Tools
yourself: How much better off would we be if we had taken these cost-cutting steps fi ve years ago, rather than waiting for the reces- sion to force our hand?