Small business and big business think differently about jobs. Large companies cut workers at the first sniff of profit peril, but small business owners are traditionally true to their employees—they seldom choose layoffs as their first cost-cutting move.
That's critical, because small business has created 64 percent of all net new jobs in the U.S. over the last 15 years, says the Small Business Administration (SBA). While big business grows and shrinks headcount with chilly abandon, Main Street is a steadier employment engine.
The big-company bias toward layoffs underestimates the associated costs: lost productivity, erased business memory, the difficulty of hiring employees. But small business owners know it's critical to keep their good employees and avoid losing their competitive ground—and they know that loyalty to employees tends to come back in kind. That's why they seek out different cost-cutting options.
So how do small businesses pull it off? With a combination of innovative thinking, common sense and shared sacrifice. Over the years, I've noticed 10 tactics that smaller firms can use to cut employment-related and other costs without cutting employees.
1. Perform an overtime overhaul
Oddly, many companies that cut staff end up paying their remaining workers more for working overtime hours—or they don't consider eliminating overtime hours in the first place. But they could restrict costly overtime pay to special circumstances, and only to certain employees.
2. Soar into the cloud
Web-based ("cloud") services offer a terrific strategy for eliminating third-party vendor services that you might be paying to outsource—your employees can use the cloud to perform those services and functions themselves. Billing and invoicing, search-engine marketing, expense-account management, online payments, customer scheduling, e-mail marketing, even office security—all can be handled cost-effectively in the cloud by your staff.
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3. Cease and resist the temp temptation
And think hard before substituting costly help from temporary services for full-time employees—and if you're using these services, you can eliminate those costs quickly. Using temps is a common strategy, but it's expensive—and unproductive once you factor in agency fees and workers who aren't familiar with your business.
4. Cut space and try telecommuting
If you do it right, letting some of your staffers work from home can cut your costs and improve your productivity. So how do you do it right? First, only permit telecommuting for work that can be done effectively off-site, and make sure you keep enough staffers on-site to keep the office effective. Calculate the likely costs of telecommuting: new computers, software and Web connections. Set specific policies and expectations on work schedules and deliverables. Create "rotator" space for multiple employees who work on-site on different days. Replace face-to-face meetings with group-video calls on Skype. And share documents and collaborate online with workgroup sites like Basecamp.
5. Embrace attrition, freeze new hiring and ask for volunteers
There's bound to be some natural turnover, so don't rush to fill vacant positions. And some employees might be happy to work fewer hours, if it means they can keep their jobs.
6. Retrain, repurpose, redeploy
When business wanes, some workers will have less work to do. So redistribute your staff's responsibilities and offer training where it's needed. Most people are willing to try new things when given the chance.
7. Delay raises and rethink bonuses
It's never a popular move, but putting off raises is better than outright pay cuts. Across-the-board pay cuts are painful, but they might be necessary in dire circumstances. If you use independent contractors, negotiate lower rates, and have the contractors assume additional costs.
8. Offer some carrots, too
Try to balance any cuts or delays in pay and hours with morale-boosting incentives: additional time off, recognition programs, free food.
9. Tweak health care benefits and boost employee contributions
If your business offers health insurance, consider cost-reducing changes to the plan, such as higher deductibles and co-pays, as well as increasing employee premiums.
10. Seek and destroy inefficiencies
Employees will feel better about tightening up if they feel the business is doing everything it can to avoid wasting money that could otherwise go to pay and bonuses. And they'll appreciate being asked for their own ideas and suggestions for how the business can operate more efficiently day-to-day.