Coming Down

Focus On: Money & Employees

Line up cash.
Money is always king, but never more so than in a downturn. That's why , founding partner in Newport Beach, California, firm Squar Milner CPAs and Business Consultants, advises businesses to check their lines of credit before things get out of hand.

Or if you're thinking of selling a stake in your firm to venture capitalists, there's still money out there, according to Paul R. Johnson, professor of global entrepreneurship at the American Graduate School of International Management (known as Thunderbird) in Glendale, Arizona. But VCs are much pickier about the firms they invest in.

That makes it a good time to be flexible about giving up more equity than you normally would, says David Friend, founder of software company eYak Inc. in Boston. Says Friend, "I'd rather have a smaller piece of a company that survives than a larger slice of a company that fails."

Manage your staff.
If you live through an economic downturn, you'll thank your employees. And they'll thank you if you've been forthcoming with them.

"If you're anticipating problems, don't bury your head in the sand and try to handle them yourself," Minor says. "Communicate the way it is and the challenges that lie ahead, and work as a team to solve the challenges."

To avoid layoffs, don't staff up. Friend, for example, throttled back for 2001. "We were about 90 employees headed to 140," he says, "and we decided to head to 110." Telling employees the reason for the cutbacks boosted the staff's sense of security.

Also, try filling openings with temps, says Minor. And if cutbacks are required, cut perks (golf-club memberships, free sodas, etc.), overtime and benefits before cutting people. A salary freeze might be in order, too. "Give bonuses in lieu of salary increases," he says.

Of course, that means leading by example, says , managing partner of the Irvine, California, law firm Marshack, Shulman and Hodges LLP, which has worked with many distressed small businesses. Says Shulman, "Executives should only take what they need for reasonable living expenses."

Spend wisely.
Salaries and benefits aren't the only places to cut corners. "Don't overexpand; don't overcommit; don't overleverage," says Dunkelberg.

Just as Minor recommends leasing talent, he also suggests using rentals. "Forgo capital expenditures unless you know you'll be at capacity," says Minor. "You can lease just about anything."

"If it can't generate revenue in the next 12 months, we're putting it off," says Robert L. Wallace, founder and CEO of two computer training companies, EntreTeach.com LLC and The Bith Group Inc., both in Columbia, Maryland.

But don't expect to find all your savings in big-ticket items or office supplies; dig around to find less obvious budget killers. "In good times, there's a tendency for principals who have credit cards to purchase at higher amounts," says Squar. "A leakage can occur on the managerial level as well."

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This article was originally published in the April 2001 print edition of Entrepreneur with the headline: Coming Down.

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