Just like so many business owners out there, I felt the heat from the downturned economy. PostcardMania's weekly earnings were down 41%, and we were frantically searching for a way to get back to our break-even and recoup our losses. With 282 salaries making up the bulk of our weekly expenses, scaling back on payroll costs could be seen as a viable option.
The thing is, those 282 salaries are attached to 282 huge investments – my dear and beloved staff, whom I've devoted a lot of time and effort into finding and training. I see my employees as people, not assets, so I also couldn't help but think about the families they feed with those paychecks. My gut was telling me that furloughing wasn't an option, let alone laying a single person off. So I listened to it and covered payroll myself until we were able to bounce back.
I’m not going to lie to you — it was a stressful six weeks. But we kept the train on the tracks and got there in the end. As a result, not only were we able to keep each and every staff on board, but since then, we have added 33 brand new jobs to the roster. Record-setting revenues in July and Q3 made it possible to hire on all this new talent, but we never would have reached those heights if I had a staff full of new hires needing training after those rough six weeks.
I learned a lot through this process. I'd like to share with you four financial strategies that offered some much-needed breathing room when things were at their worst.
1. Take on smart, low-interest debt and leverage your network of long-term vendors.
Debt is an inevitable part of running a business. Debt during a down economy, however, can bring an early demise to your business. On the flip side, smart debt can also be a lifesaver.
You need to do your due diligence and choose what kind of debt you take on carefully. The Personal Payroll Program (PPP) was an excellent option for small businesses to get a completely forgivable loan, and it played a massive role in giving my company some financial breathing room. Even if you didn't follow the spending standards to get your loan completely forgiven, with a low interest rate of 1%, you take the risk and put those loans into growing your business – something I've learned is never a bad idea.
Another source of financial breathing room could be your network of vendors. If you've carried out your business in an ethical manner and don't have an absurd request, you should have some acquaintances within your network that can help you through tough times. My company has always had an amazing relationship with our vendors, so we asked them if we could accumulate some debt with them (remember that smart debt above) to pay off in the immediate future – they were happy to oblige, as we have always paid on time and as a result, they value our business relationship.
This allowed us to reallocate resources away from paying a few bills to cover payroll instead. My vendors knew that as soon as we recovered, I would make them whole again, and I did immediately.
2. Closely evaluate assets to determine if anything can be liquidated.
Analyzing data and asset usage is an important part of running a successful business, and definitely vital in times when money is stretched thin. Despite this, an estimated 73% of company data that isn't utilized for analytics. Nor knowing how to effectively use data to maximize operations and expenditures can negatively impact productivity and force you to take on unnecessary expenses, and as a result, cost your business some serious dollars.
After reviewing and considering our data and assets, we came to the conclusion that our nearby storage building wasn't useful enough to keep around, so we liquidated it immediately. All we needed to figure this out was some creative thinking – no expensive data-analyzing technology required.
3. Realize the long-term cost of downsizing staff.
If you've tried everything above and you're still desperate for some financial alleviation, I implore you to look to the future and calculate the long-term damage of layoffs. I realize there are immediate savings to be had, but look at it like this: SHRM estimates that each of your staff dropped cost you a massive one-third of their annual salary.
If you couldn't tell already, I view my employees as indispensable. I've simply put too much time and money into them for layoffs to make sense. If you view your team this way, they will appreciate your belief in them, and they may just surprise you with how much they benefit your business.
Where do I suggest you recoup these losses, then? Read on.
4. Don't cut back on marketing – as a matter of fact, maintain or even increase those efforts to recover.
I know adding an expense in times of financial stress may seem counterintuitive, but hear me out. You might have already cut back on your marketing, as some estimates say that 86% of marketers have already delayed or reviewed previously planned campaigns. It makes sense; in times of economic instability, usually one of the first costs to go are marketing expenses.
It's my belief that marketing should never be on the chopping block for any business. Why would you ever eliminate something that's ultimately driving your business forward?
Target's actions during the 2000 recession are a prime example. When things got tough, they increased marketing efforts by 20%. During this time, they grew profits by 50% and sales by 40%. This resulted in their profit margin jumping from 9% pre-recession to 10% post-recession.
Make no mistake, increasing marketing isn't a magic key to being pandemic-proof. The effect of these efforts was compounded with other key moves to improve operational efficiency and reduce costs. But marketing certainly played a key role in their success.
As the pandemic has progressed, more companies have realized they should do the same. Once those marketers that previously put their campaigns on hold realized that it wasn't helping their cause, they did the opposite and started increasing their marketing spend – to record levels, in fact. According to this nationwide survey, spend on marketing as a percentage of American businesses' overall budgets increased to 12.6% in May, which is the highest it's been in the 10 years of the survey.
This increase stems from businesses' views on the importance of marketing – 62.3% believe it has increased in importance, while only 1 in 10 believe it has decreased.
These businesses are now learning what I learned the hard way during the 2008 housing crash and the early months of the pandemic. Recession after recession has shown that marketing is a critical business cost needed for longevity, not simply a growth strategy.
As the wildly successful businessman Henry Ford said, "If everyone is moving forward together, then success takes care of itself." Before you start sifting through your employees' value to decide which to lay off, take a page from his notebook and consider these alternatives. They aren't just smart in the long run but ethical in these difficult times.