Wow, things are really bad out there. You can’t keep all your employees busy and so you are struggling with how and whom to lay off. Your profit margins have been reduced tremendously, and you’re wondering how you’re going to make your next house payment. You’re paying $1,500 a month for your rental space while the space next door is empty and advertised for $900 a month. How can you survive in this market?
During my 27 years of practice, I have seen many down markets. While this one is pretty bad, the reaction to it is no different than the ones in the past. No one thinks they are going to survive, but amazingly, many do.
One thing I have noticed time and time again is that those who make intelligent decisions during the bad times come out ahead in the long run — not only do they survive, they thrive! They are the only ones left when the market changes, and then they are in high demand. So how do you survive during the bad time in order to come out ahead on the other end? By not letting things happen to you, but rather planning how things happen to you.
- Employees. I know you hate the thought of laying off employees who have been with you for years, but if you try to keep everyone employed, you will go under and then no one will be employed. Recognize the need to cut back on your workforce and do it in a legal manner. Develop a workforce reduction plan that clearly specifies what type of workforce you need and who can fill the requirements. See “Downsizing Your Business,” Qualified Remodeler, March 2008.
- Space. If you can’t afford your rent, don’t just stop paying. Talk to your landlord. She doesn’t want a vacant building and right now it would be difficult for her to get another tenant. She should be willing to work with you to keep some money coming in to meet expenses. Ask your landlord how much she needs to pay the mortgage, taxes and insurance. If you can meet those expenses, she will probably be thrilled. Put the lease modification in writing so that it is clear what you will be paying.
- Pricing. When times are bad, homeowners think they can get a new house for free. Don’t get too desperate for work; it will cost you more in the long run. While you might need to lower your prices in this market, don’t work for free. Meet with your accountant and figure out what you need to charge for your jobs to make ends meet. Let your customers know that they will get what they pay for . . . in other words, if they get a job really cheap from someone else, they will pay more later to fix the problems. Whatever you do, do not take money from one project to pay for another project. This is a criminal offense, punishable by time in prison!
- Your Savings. Do not, do not, do not take money out of your savings to keep your business running. You will end up with no savings and no business. I have seen clients use all their savings and then mortgage their house in order to meet payroll and keep the jobs going. Your business should make you money, not cost you money. If you get to the point where you are doing either of these things, stop immediately and seek professional help . . . attorney, accountant, financial planner. Make intelligent decisions before you spend everything you have.
- The Last Resort: Bankruptcy. If things are really at a point where you can’t make ends meet, seek the counsel of a bankruptcy attorney to at least know your options. With careful planning you can renegotiate your lease, eliminate your past debts and actually remain in business. There are certainly ramifications to declaring bankruptcy, but sometimes it is the smart thing to do so you don’t end up on the street.
I know this article is depressing, but facing the music earlier rather than later is the best thing you can do for yourself, your family and your business. If you plan accordingly, you can be the top dog when the market changes. You can be one of the few that will once again see 40 percent markups and 10-month backlogs.