Jul 26, 2009

React Quickly to Bad News

Here's the first strategy from my save your business list. It's a fairly obvious one, but not following it has cost many a small business owner their shirt over the last six months:

1) You must react quickly to bad news.

If an economic downturn, bad industry news, or the illness of a key employee or owner threatens the viability of your company, you need to make a quick decision: Will you try to fix the problem (for example, in a downturn, you might cut costs sharply to try to stay afloat), change the direction of your business, try to sell your business, or simply close down? Failing to act quickly can bring down a business that could have otherwise have survived.

Here's an example: A friend of mine worked at a company that lost half of its service business by January 2009. But they kept hoping things would turn around and didn't want to lose any employees, so they kept a full staff until April, when they finally made some gradual layoffs. Then in May, when they started having trouble paying bills as they came due, they reduced the work week to from 40 hours to 30 hours. In June, they laid off a few more employees each week, until just a few people were left in the office. The first week of July, fearing the worst, two key employees left for new jobs, and the company imploded. Lesson to be learned: The company should have made deep cuts in January, probably laying off half of its workforce then. If it had done that, it would have had a good chance of keeping the rest of its employees busy at 40 hours per week and might have been able to hold on to its key employees. Of course, hindsight is 20/20.