Business Owners Take Paycuts -Taking the Plunge to Keep Business Afloat

by Marjorie Steele, Editor for IQS

Marjorie Steele, Editor for IQS

If you own or manage your own manufacturing company, this is not going to be news to you at all.

In fact, if you’re a marketer, salesperson or an employee in any other field working for a manufacturing company, this is most likely going to be something you’ve heard before – perhaps from your own employer.

Business owners and entrepreneurs are taking pay cuts, and even indefinite pay suspensions, to keep their business afloat. This comes as an alternative to employee layoffs, marketing cutbacks (which are damaging in a recession!) or the business going under altogether. According to American Express’ OPEN Small Business Monitor survey, 30% of U.S. small business owners and managers have stopped taking their own salaries. Another survey done by Staples found that 50% of the 300 business owners they surveyed are reducing their own compensation. Here are a few more interesting statistics on how the recession is affecting U.S. businesses:

– nearly one quarter have reported bartering activities and services (nearly half showed openness to bartering)
– 27% employ a family member pro bono
– half have frozen hiring
– 25% are re-evaluating and renegotiating supply terms
– over 15% have cut employee benefits
– over 15% of owners/managers have picked up a second job
and, perhaps the most surprising:
– over 75% of business entrepreneurs believe “managing through the recession has made them better business owners”

And why shouldn’t it? If you can learn to trim the fat off a business without damaging its growth and capabilities, imagine what you can do when there’s more money to work with. How and where to trim fat (without, say, severing an artery or limb, to be literal) is the dilemma which drives entrepreneurs and business managers to make decisions which will make or break their business. Here are a few things experts are emphasizing you should NOT do, including some suggestions on what could be done instead:

1) Don’t: lay off workers unless absolutely necessary. Hiring new employees is extremely expensive. Costs for recruiting, hiring and training new employees can be between 25% and 65% of that employee’s yearly salary, not to mention the toll layoffs take on remaining employee morale, company reputation and diminished production. Besides, what will happen when business picks up after you’ve survived the recession? You’ll have to fill all the positions you emptied at great cost to the company. See why business-savvy entrepreneurs view layoffs as a last resort?

Do: work on increasing work efficiency. If you’ve ever seen a Charleton Heston film, you understand that snapping the whip isn’t the best way to motivate employees to increased production – quite the opposite. Try encouraging employees. Let them know their jobs are still secure, emphasize what they still have in their benefits package; try low-budget morale boosters like upbeat company meetings which build a sense of community, not disenfranchisement.

If necessary, pay cuts, time cuts and benefit cuts can be viable options. Knowing that their company’s owner or manager is also taking a pay cut – or foregoing pay altogether – will make pay cuts more palatable to employees. We’re all in this together.

2) Don’t: slash haphazardly at advertising budgets. Less advertising = less customer visibility, and less customer visibility = less business.

Do: carefully weigh and measure your marketing campaigns; which ones are truly the most effective? Don’t bet on the campaigns which have worked for you in the past, bet on the campaigns that are working NOW. And if none of your campaigns are working as well as you would like, start up new media campaigns. The web has a wealth of effective advertising opportunities available at a fraction of the cost of traditional print, TV and radio advertising. Talk to blow molded bottles because your buyers are switching to tetrapaks? Offer a recycling program as part of your processes.

Cutting owner, manager and CEO salaries is a creative way to solve the problem of razor-thin budgets. Old fashioned free market rules frown on entrepreneurs and top executives taking a voluntary financial hit, but if watching U.S. banks, Wall Street, AIG and auto companies crash over the last six months has shown us anything, it’s that the old free market rules need to be reevaluated. This is not a long term solution by any means, but it demonstrates willingness and forward thinking. The businesses which continue to seek these kinds of creative solutions and which evolve into positive manufacturing and business strategies will be the ones to come out on the other side of this recession.