No matter how hard you try, you can't always predict your revenues. So what do you do when sales don't materialize and you're suddenly facing an unanticipated downturn? How do you balance your company's need to retain talented and loyal employees with the need to cut costs? Every situation varies, but here are several creative alternatives to laying off employees.

  • If you can afford it, use the downturn to work on long-term projectsb During a six-month lull, Bob Dabic, president and CEO of Dabico, in Costa Mesa, Calif., put teams of employees to work on internal improvement projects. Thanks to a cash cushion, the airport equipment manufacturer, which has about 50 employees, was able to use the slow period to revamp important business processes. Dabic also kept some workers busy renovating the plant.
  • Ask employees for suggestions. That's what April Morris, president of Associated Engineers, in Ontario, Calif., did some years ago when work slowed at her civil engineering company, which had 1998 revenues of close to $4 million. Morris explained the company's situation and asked the engineers for ideas. One result: 12 salaried engineers volunteered to take an hourly wage for a while, getting paid only when they had billable work. The voluntary cutback helped, but Morris still had to make some tough decisions: She let three engineers go and switched three others to part-time. Six months later, however, the 12 volunteers got their salaries back.
  • Ask employees to work part-time. A cash flow crisis in the mid-1990s left few options open to Sales Building Systems, a database marketing company in Mentor, Ohio. To survive, CEO Tim McCarthy turned many full-time positions into part-time jobs and let 13 people go. Over time, he replaced the departed employees with two kinds of part-timers: those who work part-time by preference, and those who ultimately want full-time work.
According to McCarthy, the new arrangement has made the company, which had sales of $4.2 million in 1998, more agile. Now the company relies heavily on part-timers. During down periods, McCarthy says, the company first asks for volunteers who may want more time off. If that doesn't reduce payroll enough, the company can begin reducing part-timers' hours across the board. Most new hires now start part-time, and almost all recruiting for full-time jobs is done internally.

McCarthy finds that the workers who are attracted to part-time jobs form an interesting workforce - and a talented one. "The person who runs the company started as a part-timer," he notes. Meanwhile, McCarthy keeps morale up by sharing 10% of profits with everyone on staff - 20 full-time employees and 20 to 40 part-timers. Profit sharing is apportioned by hours worked.