Every startup goes through a “dark phase” in their life span where the sales and figures of profitability are not in line with the projected goal. Things start going south and the management spirals into a panic mode. Expenses skyrocket to a point where companies are forced to appeal to their last resort – mass layoff. When the company is sinking like the Titanic, it does everything it can to stay afloat, even at the cost of losing its most important asset, its workforce.
Before companies take this drastic decision, they should always consider other cost-cutting measures:
A hiring freeze
A hiring freeze is the quickest and the most effecting measure for cutting costs. A company should initiate this by stopping the hiring process for all unimportant and non-essential positions. Keep only those employees who are absolutely necessary for conducting day-to-day business and interact with the customers. If hiring people is a necessity, do so for the essential positions only which might generate immediate revenue for the business.
When the company is going through turbulent times, it makes no sense to add more costs to the permanent bottom line. Freezing the salaries is a drastic measure, but it’s still better than initiating a mass layoff, and with proper talks, the management might be able to make the employees understand about the same. Provide an expected time frame as to when the employees will receive their due salaries.
Sacking contract employees
An entrepreneur generally has lesser concern for the temporary employees than the regular ones. How a firing effects a temporary employee’s life is not of much concern for the head. In the companies’ troublesome times, the contract employee should and must be let go to make effective cost cuts.
Consider a virtual office
Working remotely has a lot of upsides. For starters, you don’t have to rent a space and invest money in it. Smaller companies can rent out or downsize their work space while sending others to work remotely. Of course, the change is drastic, but this might help you retain those talented few who would’ve left voluntarily otherwise. There is a whole lot of good (and free) tools to help teams work remotely.
Placing employees on a mandatory unpaid leave is a good option for companies with a seasonal decline in business. The length of these leaves can range anywhere from a workday to a whole week. But even though furloughs save costs, there might be some additional expenses depending on the length of the furlough and the employee’s work history.
This measure allows two people to share a job that usually requires one person to complete. It entails shorter and reduced work hours, too. The affected employees can reap the benefits of partial unemployment. A number of companies experiencing cash crunch are adopting this method as an alternative to layoffs.
A cash crunch is a tough time for any company. No matter how big or small, it’s going to hit the company hard. However, it’s definitely not the time to give up hope and pull the plug on the company that you built. Instead, fight through and come out as a victor.