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Many SMEs are often forced to lay off employees when they experience losses. Because at such times they try to cut costs instead of increasing income. It is questionable whether it is possible to confirm the existence of the business by removing these employees.

There are two ways to increase the profit of a business. One is to increase the income. The other is to reduce the cost. When the income of a business is falling, the only option is to cut expenses. But how to do this effectively.

Most managers focus on general overhead when cutting costs. In the general overhead, there are more things like salaries of general employees, loan interest, overdraft interest, lease interest etc. Due to this, the existing financial expenses are kept aside and more weight is placed on the salaries of general employees. That means the salaries of employees in departments such as the finance department, human resources department, internal audit department & IT department. Because they are not involved in operations directly but are indirectly involved. So, in many SMEs, they are treated as a group of people who just sit and get paid. Because of that, in difficult times for businesses, they try to reduce the number of employees in these sectors as much as possible. Actually, it is not a problem to remove the unnecessary number of employees not only in these sectors but also in the production and sales sectors in a reasonable manner. But it is unacceptable to ignore employees just to cut costs.

I think in such cases we should give priority to financial cost over labor cost. We can restructure the debt. This will enable us to reduce the penalty interest for defaulting on the loan payments. In addition, the business can get overdraft facilities by settling the existing bank overdraft on time. It is desirable if long-term credit facilities are available at more favorable interest rates. But there you have to be careful about the leverage ratios of the business. On the other hand, if such loans are taken, the money must be reinvested. The money should never be used for business expenses. Because I have seen cases where some businesses take loans and pay salaries at times like this. In addition to that it is better to temporarily stop giving employee loans.

When there is a financial crisis, both employees and owners have to make certain sacrifices. The day the employees get their salary will be a little late. Incentives will be lost. The annual trip will have to be cancelled. Further it is very harmful if the owners are continuing their cash drawings as they think. Therefore, everyone has to understand and make those sacrifices for the sake of the business. Because everyone depends on it.

Another important thing is to negotiate with the suppliers of the business and try to extend the credit period as much as possible. Specially credit period is necessary for slow moving items.

Finally, income should be taken care of. There you should try to collect money from the buyers quickly. For that, you can use tactics like giving cash discounts to buyers who settle early. Or you can do factoring. In addition, it is important to talk to the sales department and prepare new sales plans. Finding new business opportunities in the market is very important here.

It is my belief that if you take care of these matters when the business is facing a crisis, you can get out of the problem easily without having to fire employees.