The problem is partly psychological. Most entrepreneurs are, like me, optimists by nature. They're also patriotic, and they may feel that if they cut back now, the terrorists have won, although I would strongly disagree. The terrorists win only if they put you out of business.
Psychology aside, a business owner may not realize what's happening. Take the guy with the delivery company who's doing 20% less business following the attacks. Because his direct costs are down, he has fewer bills to pay. Meanwhile, he's collecting on the receivables he sent out before the downturn, so his cash balance might actually go up. Unless he's carefully tracking his numbers, he may not see the danger he's in. As far as he can tell, business is just a little slow. Meanwhile, he hears Alan Greenspan urging Congress to put off action on a recovery package until we have a clearer picture of the disaster's economic impact, and so the delivery guy figures he can wait, too.
But in business, if not in government, waiting is a very bad idea. For the first few months after a disaster, it may seem as though your company is doing OK--nothing terrible is happening. Then suddenly in the fifth or sixth month, you could find that you can't pay your bills.
So how do you avoid that fate? There are actually two things you should do right away if you haven't done them already.
First, you need to look at your cash flow over the next 90 days and determine how it will be affected by the crisis. In my case, for example, I knew immediately that we'd have a problem because some of our receivables were paid out of a processing center in lower Manhattan that was shut down by the attacks. I also have an airport lost-luggage-delivery business, whose customers are the airlines. They were obviously going to be paying their receivables more slowly, as were some other customers that had sustained damage. My executives and I figured that altogether we'd need an additional $500,000 in cash to get through the next three months.
If you know your cash needs, you can usually find ways to take care of them. You can call vendors and tell them you have to pay more slowly than usual for the next couple of months. You can call unaffected customers and ask them to speed up their payments. You can talk with your banker about extending your credit line. There may also be government programs you're eligible for. A significant part of our cash-flow problem was solved when the IRS announced that affected businesses could have until January 15, 2002, to pay estimated taxes.
The second step you need to take is more difficult than the first. You have to make a clear-eyed assessment of the disaster's impact on your business over the next year. That means going through your customer list and making your best guess about the amount of sales you think you'll lose.
In coming up with your estimate, it's wise to err on the side of caution. At times like these, we all have to guard against overoptimism. Listen to the more conservative people around you and prepare for the worst-case scenario. Cutting a little too much is better than cutting much too little.
That said, it's also important to bear in mind that recessions end. You don't want to do so much cutting that you miss the next upswing. In particular, I'd avoid cutting people if possible--for business reasons as well as humanitarian ones. Layoffs can do serious, long-term damage to a company's culture. Sometimes they're necessary, but I believe they should always be a last resort. Think first about freezing salaries, eliminating perks, not replacing old equipment or filling open positions, postponing company parties, and so on. Your employees will understand and support you if you're trying to save jobs.
And if it turns out you can't save jobs without laying some people off, don't allow the process to drag on. Make all the necessary cuts at the same time, and then let the remaining employees know their jobs are secure. You will destroy morale--and lose good people--if everybody is wondering who will be the next to go.
Aside from minimizing job cuts, I'd also avoid cutting back on selling and marketing. In fact, I'd figure out how to do more of both. For reasons I've explained before (see "How to Grow in a Soft Economy," June 2001), I believe that companies should expand their sales-and-marketing efforts during a recession, even if that means taking money from other areas of the business.
And one last piece of advice: if you're the owner of your business, now is the time to take charge. I generally let my managers run my companies, but I've made the key decisions since September 11, and I've gone out of my way to be more visible to employees. I want them to know that we're doing what's necessary to get through this crisis and come back stronger than ever. The terrorists may have left a gaping hole in the skyline across the river, but we're going to make sure that when the final toll is tallied, we won't be included among their victims.
Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc 100 company and a three-time Inc 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available on-line at www.inc.com/keyword/streetsmarts.
