Doing Business Just to Keep Your Employees Employed? Noble Idea, but a Failing Strategy

We must review this issue again, as I continue to talk to small business owners who tell me they are accepting marginal business, even loss leaders, non profitable business just to keep their men employed.

This must stop. There is no logic whatsoever to this strategy and in the end all it will do is put you out of business, costing all your employees including yourself, their job and cost you your revenue you are so carefully trying to protect.

It is basic arithmetic. Every aspect of business has overhead, not just the cost of goods. Not just the payroll. But also the payroll taxes, the insurance, the fuel for the trucks, the rent for the office or building, taxes on everything, and on it goes.

So when you accept a job that is not profitable, just to keep the men working you are in fact investing additional capital into this job, capital you do not have, the hidden costs which are not being satisfied. Yes you may be able to pull out the men's paycheck, but if you are not covering everything which comes out of gross profit then you are losing money and contributing to your own demise, then all the jobs will be lost including yours. What is the point?

Business is cruel, but the math never fails, it tells the truth. If you are bidding jobs below profitability, including all your overhead, or selling product at deeply discounted prices that will not support all your overhead out of profit, you are fooling yourself and it is ego that is driving you, not smart business sense and the arithmetic.

I understand that your employees are like family and you feel a sense of responsibility for them and their families and you know how difficult it will be for them to find replacement jobs, however you may as well just send them home and mail them their paycheck as that would be better than having them work for below cost or without adequate profit.

You must cease this emotional support of your employees; it is not your responsibility. Get smaller, save some jobs, reduce your debt and reinvent your business so it works in this down economy that is what you should be doing for your employees so you can employ them meaningfully and profitably, not wastefully with disaster looming in the future.