With something like two decades in business (I can trace my first publication to 1988), I’ve seen my share of ups and downs. Sometimes the “downs” land like a thud, other times, things just seem to be totally lucky and the profits are outrageous.
Turning points can be hard to assess. In the last major crunch, in 2008-09, we were starting to feel we could sail endlessly in the wind with growing profits and — even though I could see some really nasty stuff immediately ahead — optimistic signals we would weather the storm. I increased my costs, thinking a couple of additional sales reps (with salaries to start) would help us secure some new and established markets. We bought some toys. Then, wham, we had a $50,000 monthly loss — the most significant loss in the company’s history. Still, I held on, noticing incredible sales volume projected for the following month and thinking I could just hang in for a while longer.
Well, sales were indeed great the next month, but I had a big problem. With the added costs, we were barely breaking even on volumes that would have been highly profitable a year before. The following month we lost $20,000. And my bookkeeper gave me some bad news: She had erred and miscalculated some of our revenues, so we were actually about $30,000 “less profitable” than before.
Now panic started setting in. I made it clear to employees we were in serious trouble. They suggested cosmetic and simple cuts, which should have been done long before. These resulted in about $2,000 a month in savings, helpful, but no solution to the underlying crisis I could see we were reaching our limits when my bookkeeper casually advised me she had filed tax returns without actually paying the tax. (This is technically legal, but a rather major warning sign — and can be expensive, with penalties and interest fees on the unpaid tax.) Time to wield the axe.
I did. Over the next five months, I cut to the bone as I did all I could to reassure our top producing sales reps and employees that their lives were safe in this mayhem. We survived.
(I discovered several months later that several other businesses around me were experiencing the same crisis — and the survivors, indeed, did what they needed to do to stay afloat.)
Today, I see some clouds on on the horizon, as the sales totals indicate the first monthly loss in several months. This loss follows on some break-even-to-exceptionally profitable months; with enough retained earnings that we had to pay a significant tax installment a few weeks ago.
No problem, yet. The loss in relation to previous months’ income isn’t so serious to erase previous gains and includes a one-time charge. But November is usually a fairly good month. And once we are through December, the winter months (especially February) historically can be the most challenging months of the year. (I find it strange that our business seems to echo many individuals facing the post-Christmas blues, but cannot change the reality.)
What to do, what to do . . . . Well, I think we have been fairly prudent this year, avoiding careless excess. We replaced the office carpet (for $150) and after much effort, got our landlord to fix the air conditioning — instead of moving to much more expensive digs. We have minimized conference and travel expenses with one exception with cash reimbursements or free trips. Our editor works on a piece rate rather than salary — meaning we don’t have a painful fixed editorial cost there. I haven’t set in motion any crazy expansion plans with rising cost projections and we have reduced our debt overhang somewhat. Even our “toys” are often paid for with trade out rather than cash (and we aren’t forgoing cash sales for the trade-out revenue.)
The biggest challenge is the sales department. Here, since we use a salary base model, the calculations are complicated. Hiring new reps costs money, but the cost is relatively low compared to other employees since, even if they aren’t meeting quota, they are generating revenue which reduces their true cost. We are maintaining our pre-hiring screening and evaluation system, which virtually assures us the representatives we hire are capable at sales, but there is no guarantee of performance, especially in a challenging economy.
However, marginal sales reps fail to generate enough volume to cover the overall business overhead. If we have a weak sales rep, should we ask that employee to leave to be replaced by an untried new one. Is that taking us from the frying pan to the fireplace? In good times, the problem isn’t so serious — we can carry the added salary cost while trying out the new rep, and then if the weak performer is failing, just ask him or her to leave. When things are tighter, we are faced with much more challenging decisions.
Should I air these thoughts in public? Do you want to create anxiety among the employees about their job security? Sometimes a bit of fear is a good thing but too much can really put people over the bend. ‘
This isn’t a time for panic. But it is a time for caution.
The difference, of course, between a failed enterprise and a successful business which survives ups and downs, good and hard times and changing technologies and market priorities, is that the business leadership needs to keep focused on the real world around us. Some decisions are easy. Some are hard. I’ll keep a close eye on things.