Managing SMEs In A Tough Economy: The First Cut

This is a guest post by Steven Pang, the Managing Partner at Olmec Search. He is a recruitment veteran with over 20 years experience in the executive search and recruitment industry.

Since the start of 2016, the global economy (and by default the Singapore economy) has been flat.

knife and cutting board, representing cuts in a tough economy

The stock markets around the world are still either trading flat or down from 2015. Some experts believe that the stock market is six months ahead of the economy, so we are in for some turbulent times!

If you haven’t already heard the whispers in the office, words like “layoffs”, “redundancy”, “retrenchment“, “cost cuts”, “downsizing”, “rightsizing”, “doing more with less”, might soon be common vernacular.

For small-medium enterprises (SMEs), cash flow is THE most critical aspect of the business to ensure the company continues to survive, thrive and grow. “Cash is king”, “cash is oxygen”, “cash = life blood”.

For SMEs, especially those in start-up mode, the business can sustain a loss making phase for a while, but it needs to have enough cash in the bank and money coming in to pay the bills, rent and salaries.

Having survived two major recessions that shook the world, the Internet 1.0 bubble pop and the sub-prime induced recession, I have experienced and picked up some useful tips on how to run successful businesses under harsh market conditions.

When you see revenues are trending lower month on month, and the pipeline looks thin, even if you are an eternal optimist, sometimes, it’s time to face the cold, stark reality and take action and before it is too late. Procrastination will only prolong the pain.

In the words of Rod Stewart, “The First Cut Is The Deepest” (for Gen Y readers, Google him if you are not familiar with this Rock God from the 70’s & the 80’s).

Look, I am not taking this lightly. It is hard, and nobody wants to be the villain. 

As a manager and leader, you have to do what is necessary to ensure the business survives and have a chance to re-build with the core group of people that are left.  Be equipped to fight another day.

When it comes to making cost cuts, be clinical, take emotion and sentiment out of it. Cut quick and cut thick. Let the shock settle in the office. After a few days or a week, your people will accept the “new normal” and move on. It might surprise you how resilient people are.

After a few days or a week, your people will accept the “new normal” and move on. It might surprise you how resilient people are.

Some examples of what to cut:

1. Underperformers

under-performance-man-losing-race-to-peers

The ones that are not contributing to generating revenue to the business and not meeting expectations.

These aren’t bad people, in fact, some of them have other good attributes like contributing to the social aspects of the team environment, good fun people to have around.

Some of these underperformers might be good contributors at one point in their tenure but maybe had lost their mojo and motivation to fight to win.

Non-revenue generating headcount will need to be considered for cutting too in the cold light of day.

Can you do without that headcount? Can another person double-hat that role? If yes, then cut.

 

2. Negative, cynical people

negative people

When it is crunch time, and you need everyone to huddle around a common cause to fight for business survival and a turnaround, you need people with positive, “can do” attitude.

The last thing you need are people that spread cancer thru the team with the negative vibes.

Negativity is contagious and will kill off whatever fighting spirit is left. Cut.

 

3. Salary & benefits

Salary and Benefits

In most professional service businesses, the monthly payroll is the biggest expense. You can ask everyone to take a straight 10-20% pay cut, but that is a bitter pill to swallow.

A creative way to compensate for the wage cut is to give them time off. e.g. we are all taking a 10% salary cut, but we can all have one day off a fortnight in compensation (10 working days – 1 day off = 10% cut).

Oh BTW, for this initiative to work, the manager/leader has to lead from the front. The boss has to take a 10% (or more) cut just to show that we are all in this together!

Regarding benefits, the non-essential benefits will have to go for now. Those over-the-top fancy team parties, dinner and drinks at swanky restaurants will have to be put on hold.

Business travel also has to be looked at, only go if it is necessary, if it’s unavoidable, then look at flying economy class or budget airlines, staying business hotels instead of 5-star hotels.

 

4. Renegotiate terms with suppliers and vendors

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After payroll the next biggest expense is rent. If your lease is coming up for renewal, it is an opportune time to sign up for another two years at a lower rent.

I have also used the bad business sentiment to drive down the cost of marketing and advertising with media partners.

In my next blog post, I will share some tips how to communicate clearly and openly to the staff on some of these cost cutting initiatives.

If communication is not done correctly, you will have demotivated people in your team with emotional and irrational responses.

Question: Please share your experience in managing your business in a tough market. You can leave a comment by clicking here.

Please note: I reserve the right to delete comments that are offensive or off-topic.