Re: “Entrepreneurs Cut Own Pay to Stay Alive” by Simona Covel, 5.6.9 http://online.wsj.com/article/SB124053156953150693.html
“A number of small-business owners have stopped paying themselves as they struggle to keep their companies afloat,” the article starts. She quotes a business owner: “All those small-business books say, ‘Pay yourself first.’ [But] not paying myself enabled me to keep a couple of other people around.”
I am author of one of the “Pay Yourself First” books referred to above (How to Grow Your Business without Driving Yourself Crazy), and I’m sticking by it.
Owners, if you stop paying yourself, it can have a devastating impact on your morale, drive, and productivity. Same as if you stop paying one of your other people, but the company absolutely depends on you.
Here’s what I’m advising my small business clients:
— Cut unneeded labor. If you don’t have the work, what are the people on your payroll doing? Find the level of operations that allows you to sustain your company.
— Don’t use your credit lines to meet payroll (except to cover a short-term receivables gap). And NEVER use your credit card balance for this.
— If you borrow money now to cover payroll or other expenses, then when business picks back up, you’ve depleted your credit, and you’re dead in the water.
— Cut everybody’s pay (after you’ve laid off the expendable ones). Either work 4-day weeks, or just reduce pay by 10 or 20%. Your good people know what’s up, and they know 80% is better than 0%.
— Then perhaps reduce your own pay by the same percentage.
— When all else fails, try some marketing! It amazes me how many owners are still marketing like it’s 2006, when we were all so busy we’d just wait for the phone to ring. But now, how many of us are still spending too much time in our office and not enough out schmoozing with customers, prospects, and referral sources?
— Don’t stop marketing. I read a quote this morning attributed to Henry Ford: “Cutting your marketing to save money is like stopping your clock to save time.”
— What are your customers buying these days? There’s a lot of business being done right now. See how to refine what you sell so that it meets the needs of those ready to buy this month.
— You might have to cut prices, but don’t take on unprofitable work. Don’t compete with the lowballers. If you can resist this temptation, when the recovery comes, they’ll be gone, you’ll have less competition, and you’ll have the finances to take advantage of it.