It appears those who predicted the recession would get worse before it gets better either knew what they were talking about or were just using the law of averages — after all, Columbus was looking for the East when he found the West. The concept doesn’t seem to have caught on as a research or business model, however. In any case, it is getting worse, and it might be time to look at some of the things one can and probably should do to survive.
If you listen to old fogies like me long enough, you’ll no doubt hear us say, “back in the 1900s it got so bad… how bad was it?” Then we’ll wax on about paying prime plus 1 percent when prime was 21.5 percent. The truth is we didn’t wind up paying it because we didn’t have any money left. The banks we used accrued interest due on construction loans for a little while but had to stop because they knew we wouldn’t be able to pay it. I threatened a banker by tossing three sets of house keys on his desk and said, “I’m done, either give me some slack or you finish the damn things!”
When we really get cornered, the first thought is self-preservation, and the emphasis is on the self. There are too many “pretty good” companies out there now that are stubbornly holding on to people they can’t afford because they don’t want to let them down; no one does. But are you really doing them a favor by paying them instead of yourself (the owner), when the outcome is likely to be the same — only postponed for a little while? I think not.
I used the title, “You Can’t Win if You Don’t Finish the Race,” because it doesn’t make any difference how well you drove for the first 199 laps of a 200-lap race if you didn’t finish; the only thing they may remember of your competition is the crash that took you out of the race.
At the International Builders Show and since at other presentations, I am hearing company owners say they are cutting back on days that people are working, suspending benefits and bonuses and other considerations to keep up with their workforce payroll when realistically it will do no good. You are going to crash. If you are no longer paying yourself as the prime mover of the company so you can pay others, you may have to clear the fog off the mirror to survive. If the company will not survive without you, then you are the one who should get paid. Think about it, without you there is no company. With you, there is at least hope for another day.
For many years, my company has enjoyed success in our market. We have weathered bad times and celebrated the good ones. When times were at their worst, our past clients expected we would be impacted, so they were not surprised when we called and made sure they understood that any work they needed done along the lines of repair or remodeling would be of interest to us and appreciated. It wasn’t hat in hand; it was a sincere recitation of the truth. We didn’t start big or successful. We grew and earned the reputation. By keeping in regular touch with past clients, even for small jobs, you will keep the competition from getting a toe-hold. When it gets as bad as it is now, everyone knows what you’re going through. If they were happy with you before, they will understand and believe you.
There is a tendency with some to act as though if they can’t have all the bells-and-whistles, they can’t make it — bull feathers. You can still cut a 2x6 with a handsaw and drive a nail with a claw hammer. It may not be as fast or as fun, but it keeps you building so you can finish the race.
Are you still planning? Are you looking out into the future even for a couple of months so that it won’t be a surprise when it gets worse?
If you owe money to someone with whom you have always had a good relationship and you can’t pay it off for a good reason, have a conversation before it gets critical. They won’t like to hear what you have to say, but it’s better to hear it from you than the innuendo or, worse, from one of your competitors. If you have been a good customer in the past, then their choices are: 1) to go along, help or forebear to help you make it, so someday they will have a good, active customer again, or 2) be a hard a** and force you to the wall, so they still don’t get all their money but kill any chance of doing business with you again. That’s a pretty easy choice and it works.
I have recently talked to some CEOs and VPs who are back on the firing line taking orders, writing up deliveries and doing customer service. Do they miss the fancy office and golf dates on Wednesday? They don’t act like it. And they are doing what needs to be done to finish the race. I stopped by my bank branch today to deposit a couple of checks and the person at the drive-up used to be (and may still be) the second in command at the branch. The bank had recently been bought by a larger one, and they were going to change the name. I asked if they had seen many changes. Her response: not yet, but that she was grateful to still have “a” job, not her job as VP, but a job. She is trying to finish the race.
What kinds of things might you look for in your finish-the-race glasses? The answer to this question is “everything.” Treat it just like an estimate; you use a long list of everything and cross out the things that are not apropos. Get in touch with every supplier and ask what can be done to your account to save some money. Look at phones, office supplies, uniforms, insurance (higher deductibles or drop collision coverage). Make sure your association dues are commensurate with the level of business you are doing.
Even if you have a bank loan that is current, talk to your lender and tell them you need to have them examine a way to extend the terms of the loan without making the change costly; reduce payments, extend terms, change rates, possibly collateralizing, but be careful with this lest you lose wiggle room. Bankers may seem rigid, but they have a responsibility to safeguard the principal and in times like these, it is done a lot of the time. Many years ago, a large developer, William Zeckendorf, is reported to have made the comment that the best way to get cooperation from a banker was to owe him more than he can get by just slamming the door in your face. He said something to the effect of “make sure you always owe your banker enough so that he is concerned with your health and well-being.” I’m not suggesting you threaten, but being insistent and urgent before things go to the wall is being responsible.
Be careful about payroll changes. If you are going to change benefits, make sure you know the restrictions. Our company manual says we can change benefits at any time. However, we agree to give 30 days’ notice. You cannot take away accrued vacation time, but you can ask that employees use vacation time to help get the job done. If you have a policy on sick pay, check with your accountant or attorney on whatever changes can be made without penalty to you as employer.
Before replacing a piece of office equipment (a printer, etc.) with a new one, check online to see about used equipment that someone who is not going to finish the race has left in their “pits.” Stationery can be used, even after an address change, inexpensively with over-pasted labels; and the list goes on. These are times that require radical measures, innovative survival techniques and stern discipline. It seems harsh, but finishing the race is the target. If you still have some “gas” left after you make it — that is all well and good, but don’t allow yourself to be a casualty close to the end of the race.
Consider a sale-leaseback of some construction equipment such as a backhoe or skid loader. You sell the equipment to someone for an amount to give you some cash but for market value or slightly less. You then agree to lease the equipment back for a payment low enough to afford but high enough to give the lessor a good return. At the end of the lease period, you will have paid most of the equipment off and the agreement provides for you to buy it back for one more lease payment. This will give you some cash, lower your overhead cash demand, and is fairly safe that you will not lose the equipment.
Make certain you understand the importance of your integrity in following any of these suggestions — if you have run a responsible, honest and above-board operation, you are trying to survive to perpetuate the business — the moves are tough but the times are, too. If you have been less than honest with people, your credibility is weak and your chances of negotiating meaningful changes are lessened.
How close to the end are we? Boy I wish I knew, or maybe I don’t want to know. But treat your situation as though it’s a year. If it’s shorter, it will be easy to reinstitute some of the cutbacks but only because you are still there at the finish, while you’re here...