LITMIR.BIZ

      “Business Resection” or Ways to Cut Spending

      Take urgent action!

      No matter how well you have planned for it, the crisis will strike suddenly – just as with too much alcohol, intoxication sets on suddenly and the brain is shutting down. You may think you are drinking in a measured way, and you do not drink much generally, and you have had enough bite after, and yet – bam! – you miscalculated…

      You wake up in the morning to the national currency losing 20—30% of its value or oil prices more than halving, and everything has fallen apart at the stock exchange… Your debts are now doubled; the suppliers, who were so favourably disposed just yesterday, have become your enemies demanding to return their goods. Not the money that has lost some of its value already and keeps depreciating daily, but the product that you have already processed or put up for sale.

      You forget about food, about the holiday package you have bought, and you immediately cut short your honeymoon trip. You can feel the shackles on your wrists chaining you to the oars, making you a galley-slave of the crisis. Incidentally, most entrepreneurs do not realise that it is impossible to handle the economic storm – it is as good as deliberately getting in the way of a herd of bison rushing for no apparent reason from distant pastures in your direction.

      The economic agony in troubled times resembles chaotic movement of information from one pseudo-analyst to another who is no less “informed”. They are vying with each other in predicting the timescale and depth of the slump, recalling all the crises since the Great Depression. People, with and without money alike, begin thrashing about. Some, to keep their money; others, to dodge unemployment.

      Most entrepreneurs act in the same way. These are the laws of the crowd and the psychology of how people behave in the same misery. On a sudden, they need a leader – someone who knows which way to turn. Even those who have forgotten what a TV is about keep turning it on to watch the news. Old business pals are at once able to find an opportunity to get together, even if, for various reasons, they have not seen each other for many years. The world is losing its mind, and an entrepreneur who is unprepared for these changes is going insane too.

      A different scenario is also possible: when the crunch comes, adrenaline levels in society begin running through the roof, and a young businessman toughs it out, rolling with the blows of crisis waves hitting against the side of his ship amidst an ever intensifying storm. He will neither furl the sails nor down the masts. He is banking on luck or his own dedication, determined to fight till the very end.

      Raging ocean reaching up to the sky. Wave after wave. And no one around.

      The staff, being washed overboard with each new wave one by one or by the dozen, keep calling out to their employer, asking not to leave them, not to stop paying salaries, not to shut down operations. The captain is stubborn as a bull and wants to preserve traditions, to remain a recognized leader. He believes that he’d better perish himself than betray his people. So noble-minded. But stupid.

      At the very first signs of a crisis, any entrepreneur must immediately whittle down the scope of his business, namely:

      – reduce the floorspace;

      – downsize production staff;

      – stop redundant machines and production operations;

      – scale back the supporting infrastructure;

      – delay all (!) outgoing payments from several weeks to three months;

      – accept all advance or full payments for both current and future shipments. Take all the money that someone is giving you at this time;

      – take any orders, even making little economic sense, at the cost price, or even complete loss makers, as long as there is work;

      – sell all slow movers at any price – by the time the crisis reaches its peak, you need cash, real money instead of useless junk;

      – sell off cars and all unnecessary equipment. Offload unnecessary real property; like it or not, it will surely be cheaper for many years following the crisis;

      – cut back on the driver and the secretary, opt out of going to fancy clubs and spending money on clothes, cars, and other luxuries;

      – make a list of all funds available to you, build your untouchable nest egg enough to sustain you for two or three years should you lose everything else to the crisis, and keep it hidden, say, in a safe deposit box;

      – shut down your factory, store, the whole business for two or three weeks to recuperate, get your puff back, gather your thoughts;

      – furlough most of your staff for as long as permitted by law.

      After these emergency measures (which should take three to five days at most), you should start downsizing your business for real and “for good”, not just provisionally. This is the hardest part, because it can be very painful – inevitably saying good-bye to the employees who are in high favour or who are even your relatives.