Apr 25, 2009

Cut Costs But Avoid Layoffs

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For some businesses, laying off employees is the only realistic way to cut expenses low enough. But there are lots of ways to reduce the amount of money flowing out of your business. If you get creative, you might be able to hang on to your employees long enough to outlast the downturn. Here are some ideas:

  • Negotiate lower prices. In an economic downturn, you'll be surprised at how many suppliers will lower their prices to keep your business, if you just ask.
  • Ask creditors to write off a portion of what you owe. If a creditor knows your business is struggling to keep its doors open, it may be willing to accept 50 to 70 cents on the dollar for your accounts payable.
  • Renegotiate your lease. If your lease will be up for renewal soon, chances are good that, if pushed, your landlord will give you a better deal.
  • Sublet unneeded space. List your vacancy online and canvass your area for a subtenant -- maybe a small business that can't afford space of its own any longer.
  • Stop paying for equipment you don't need. If you are leasing equipment you don't need, ask the leasing company to renegotiate payments or cancel the lease in exchange for taking back the equipment. If you own equipment outright, or are still paying on it, sell everything you don't need.
  • Eliminate discretionary spending. If you planned to paint your building or buy new equipment, don't, even if you've made a contractual commitment to spend money -- you can negotiate your way out of most contracts, sometimes for a small fee.
  • Cut employee benefits. When times are tough, it's better to cut benefits such as dental plans, health club memberships, and wellness plans before laying off people. But try to hang on to your employees' health insurance plan (if you offer one).
  • Cut salaries by a small percentage. When jobs are scarce, it's usually possible to cut pay (including your own) by a small percentage and not lose employees.
  • Cut the work week. Another way to save jobs is to go to a four-day work week (you'll save 20% of your payroll), or at least put a freeze on overtime hours.

See Riva Richmond's article in Business Week for some heartening examples of how these cost-cutting measures have been put to work.

To learn more about helping your business survive the challenges of recession, see Save Your Small Business, by Ralph Warner and Bethany Laurence (Nolo).