Retrenchments are preventable even in a recession

All sorts of articles and things flit across ones desktop. A CNNMoney article caught my eye. It’s about companies who have had no layoffs - ever. They are not necessarily young companies either.  It makes for remarkable reading.

Nugget Market is an 81 year old grocery chain. They have never laid off anybody. Why? It’s because they have been careful in how they manage their resources, people being one of those. They plan for downturns and ensure their staff get all the breaks available.

Scottrade is an online discount stock brokerage. As one can imagine it’s the kind of business that one would think could be hit quite hard by the downturn. But it’s a privately owned company. This means it hasn’t had to distribute profits to greedy shareholders. It has kept its reserves to enable it to carry on even in bad times.

As a third example there’s Publix. It’s also a supermarket. The grocery chain has never had a layoff in its 79 years of business. Since Publix is 100% employee-owned it prides itself that it has never had to lay off an owner! Nearly 6000 of the company’s ‘associates’ have made a career at Publix, serving 20 years or more.

Surely these examples are not anything the new entrepreneur should need to think of. After all he is setting up businesses often just by himself. So why should he worry about staff.

It boils down to the same principle of good management. The number of businesses that close down before their five year anniversary is quite high and is mooted to be as heavy as four out of five. One of the reasons for this, and I have seen it happen many times over, is that the business owner takes out too much money too early.

One can understand this. The entrepreneur generally ends up working far harder at his own business than if he were an employee. After doing this for a year or so, one can imagine that he is now ready to start rewarding himself if there is money in the bank, sometimes even if there is no money in the bank.

What often happens is that the business owner takes out more money than is sensible which means there are no reserves left for those months when business isn’t good. Or even in times of recession where the dip in business is not just a seasonal patch but could carry on over an entire year. This is a similar principle of public companies paying out too much in dividends to shareholders.

Be careful how you manage your money. You never know what is around the corner. Not many people predicted the dramatic drop in economic growth and confidence during September 2008. Not even the experts. As a business person you can’t be expected to be able to read a crystal ball. So make provision for those possible down times. It will make your life so much easier.

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