Cut back, consolidate, focus on riding out slump


November 05, 1990|By Michael Enright | Michael Enright,Special to The Sun

Gone are the confident chatter and the exuberance that once marked the opening of local Chamber of Commerce meetings. Today members speak in low murmurs, and their faces, over steaming cups of coffee, look tired.

Housing starts, retail sales, quarterly financial reports -- it seems every day brings another disastrous economic sign, as analysts proclaim that the nation is either on the brink, or in the midst, of a recession.

And small- to midsized businesses, with razor-thin profit margins and limited cash reserves, feel the sharp pinch first. Some won't even make it to 1991.

But crisis management specialists say that troubled companies can take several basic steps to turn around operations and drive the wolf from the door. These steps can head off a workout plan or a trip to bankruptcy court.

"Time does cure most things," says Cynthia Kemplin, president of the Kemplin Group, a business management company in Columbia. "Take any measure now to survive and get along so that when the slump is over you're still alive and still in business."

Here are some steps you can take to withstand the dark days ahead, crisis managers and business consulting groups say:

* Cut staff. Cutting jobs or hours is the quickest way to reduce expenses significantly. Cost reductions can be found in salaries, insurance and early retirement benefits. Companies can try splitting shifts or cutting work hours.

Turnaround specialists caution that a slump doesn't last forever.

"You've got to do everything you can to keep your people employed so that when you do get back on line, or when the economy improves, you're right there and ready to go," says Les Cheikin, a principal in the relocation consulting and management firm of Megerdichian, Cheikin, Barnes & Associates in New York City.

Still, if a division or product isn't carrying its own weight, "don't drag it along," says Thomas P. McShane, the president of McShane & Co., a Reisterstown consulting company specializing turnarounds.

* Renegotiate leases. Leased space is usually a company's largest monthly expenditure, so it makes sense to look there.

If you have a year or two left on a lease and are having trouble with the $2,000 monthly rent, turnaround specialists suggest asking the landlord to consider reducing the rent in exchange for a multiyear lease commitment.

L Study the feasibility of consolidating your branch offices.

Other office costs can be cut. The nightly cleaning service may have to be cut back to twice a week or eliminated entirely. Receptionists and secretaries may have to be shared with the office next door.

* Know your cash flow. "Cash is king," Mr. McShane says. "You've got to live and breathe it -- be right on top of it at all times and be able to communicate it."

Go through your expense sheets item by item, experts say, and you'll probably find more fat than you expected. Inventory levels should be pared to the minimum. When you find a questionable expense item, ask your manager or employees to justify it.

Vincent Sheehy III, who owns a Ford dealership in Marlow Heights, recently discontinued the practice of letting some of his top managers sign checks. "I may not be signing fewer checks," he says. "But I have a much better idea where the money is going."

Some companies are selling off cars and trucks or mothballing them and canceling the insurance until things improve. Others have cut back on office parties.

Turnaround experts also say business owners should develop a weekly or monthly cash planning model and monitor it closely.

Don't bank on the big break, either. If you haven't seen a check from a client in a few months, don't use it in your cash flow model, experts say. That goes for potential lawsuit windfalls, too. If they do come, count your blessings. But don't count them on your books until they're in hand.

Expenses that can be reduced or eliminated can be found in the simplest places, Mr. Cheikin says. One of his clients bought employees a five-minute egg timer to turn on when they began a phone conversation.

"In a normal seven-minute conversation, you find that about two and half minutes of it is just nonsense. The timer is a good reminder of that," he says.

* Show leadership. Remember, it will take fortitude and perseverance to make the changes necessary to survive.

The owner who insisted that his top employees use an egg timer carried one around himself, Mr. Cheikin says. Such gestures indicate to employees that you are serious about turning things around and that you need their help.

"If you're telling everybody they're going to have to take a 5 percent salary cut then you better be ready to take a 15 percent or 20 percent cut yourself," he says.

Others have taken money from their personal accounts to pay salaries or overdue rent. Employees look to the boss for any indication that the business is in trouble, so owners and managers must resist the impulse to panic or throw tantrums.

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