Even large businesses sometimes use a line of credit just to make payroll during slow times.
If you truly understand the business cycle and have a good idea of when things will pick up, this may be a realistic approach, but before taking out the loan, pay close attention to how much you really need and how often you are using this tactic.
A line of credit or a factored loan may offer the best terms, but smaller businesses may be required to put up collateral.
And despite your best efforts and advice to keep your business and personal finances separate, that may not be possible, and the bank may require collateral in the form of the owner's personal guarantee in the form of personal property or real estate if the business itself has no assets. In the case of many small service-oriented businesses, this is often what happens.
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Evaluating Your Employment Needs
A small to midsize business that borrows money to make payroll more than two or three times a year needs to re-evaluate their staffing strategy.
Making staffing reductions may ultimately harm your business, though, if it means the work is not getting done, and your customers are not being served and supported in a way that is meaningful to them. "The customer experience is more than a strategy, and 'delighting the customer' is not just a trend. It's why you are in business.
Profits and growth are just the byproducts of how well you manage to delight your customers," said customer experience consultant Amas Tenumah of BetterXperience. "Customer experience is highly relevant – and when used with defined goals and a well-staffed support group, leads to increased loyalty, reduced customer churn, and improved revenues."
Taking Advantage of the Freelance Economy
An increasingly popular solution to managing the staffing budget is the "gig economy," or the increased use of freelance, contract, and consulting personnel on an as-needed or retainer basis. "The gig economy today has gained traction from two vantage points," said Silvina Moschini, CEO and co-founder of collaboration platform Yandiki.
"Companies which incorporate a professionally managed and curated staff of freelance professionals gain better control over their personnel costs while gaining access to top-tier talent. The freelance professionals themselves are able to accept projects that suit them, on their own schedule and at a professional rate they set, rather than being tied down to the inflexibility inherent in the traditional employment model."
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The Evolution of Employment
The term "Job 3.0" as described in the book Cloud Computing Made Easy notes major changes in the workplace and employment trends over the past 20 years. The traditional "Job 1.0" model describes
The traditional "Job 1.0" model describes a '50s or '60s company that saw the company's physical size as an indicator of success, highlighted by the old IBM model of doing absolutely everything in-house. This model broke down at the onset of the dot-com boom with the ubiquitousness of the Internet. During that time, we saw companies with fewer employees taking on large incumbents, simply because technology and better communications allowed them to do more with fewer people.
The Job 2.0 model also started to break down the 1950s ideal of finding a job with a "good company" and keeping it for 30 years – a model that worked for some, but greatly diminished the ability of workers to move freely between opportunities and pursue career advancement. The "good company" Job 1.0 model rewarded those who did not look outwardly to expand their careers, severely limiting their opportunities to what might be available within a single firm.
Job 2.0 created more mobility in the workplace and made it more acceptable for an individual to venture out on their own, offering their professional services on a contract basis to the highest bidder rather than being tied down to a single employer.
Today, Job 3.0 defines what a job really means. Modern communications technologies, cloud computing and high-speed Internet, paved the way. A lengthy recession which begun in 2007 (and from which we have not yet fully recovered, despite what economists might say to the contrary) also served as a trigger point for individuals to abandon the traditional job model completely, instead turning to platforms like Yandiki to offer professional services on an entrepreneurial, rather than employee basis.
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The first plan of attack when a company realizes it may fall short on payday is to determine how much is really needed, and to conduct due-diligence on lending options to find the absolute best rate and payment terms possible. As a long-term strategy, re-evaluating staffing to embrace a Job 3.0 model will add a new level of flexibility and cost control, while allowing the company to gain access to top talent on an as-needed basis.