Published February 2003

Don’t let sales upswing
be downer for staff

From a business management standpoint, there is a difference between a recession and a recovery. In an economic downturn, your big worries are about people — and money. But in an economic recovery, your big worries are about money — and people. As the economy begins to recover, we need to keep this in mind.

The economic data we are getting is mixed, at best, but we have to remember that the employment, payroll and other statistics always relate to the past, not the present or the future.

The economic wizards absorb all of the past data, good and bad, into their forecasts, though, and if they are right this time, we will probably see some improvement in the level of business this year. A modest improvement, most likely, but an increase nonetheless, and after what we have been through, it is very welcome.

The effect of sales and revenue growth on our bottom line will be like a spring rain. Where once everything looked bleak and barren, profits will now flower.

If a company is basically sound, increased sales will make everything, even your marketing and overhead costs, look a lot better. Depending on the company’s cost structure, though, the improvement in sales may not show up right away as an improvement in cash flow.

If your firm is service-related and heavy on fixed costs, any increase in sales will not only boost your bottom line, it will flow directly into your bank account. But if your firm has up-front sales expenses, or pre-sale inventory and labor costs, sales growth will actually drain cash. So, even though sales and profits are up, you will still have to worry about money.

Most experienced business owners and managers are aware of the cash problems that a sudden spurt in sales can cause. It is something you simply have to plan out ahead of time. You may still have to worry, but not as much.

But while most of us are fairly well prepared to deal with the money problems that come with sales growth, we tend to underestimate the people problems that we will face, and by doing so, we make things more difficult for ourselves than they have to be.

One of the most misunderstood business phenomena is this: Just when you’ve got your business back on track, some of your key people up and quit. You can’t figure it. They put up with all the trials and sacrifices that the downturn forced on the business — covering two jobs, making do with equipment breakdowns and duct-tape solutions — and now, just when things look brighter, they leave.

There are two reasons why this happens in so many companies. The first is that the person has wanted to leave for some time but during the recession there were no jobs available elsewhere. With the business recovery, though, job opportunities open up and it’s goodbye time.

Surprisingly, while we often attribute that motivation to individuals (because it makes us feel better), this reason — prior intent — accounts for only a small portion of the departures. What is more typical is that the improvement in your business first raises expectations, then raises frustrations — because increased sales mean even more work for already overworked employees. And high frustration levels make other job opportunities look good, even when they are not.

There is no doubt that the departure of key people throws a monkey wrench into the works just when you need to deal efficiently with increased sales. The saddest part of the story, though, is that it is a highly preventable problem.

The key word for managers in this situation is anticipation. Just as we anticipate and plan for the cash demands of sales growth, we can anticipate and plan for the demands on our people that those same sales will create.

Most of us, though, as managers, let recruiting and job-filling go until the last minute — sometimes weeks and months beyond the last minute. Particularly after a prolonged downturn and a profit drought, we want to have the money in hand before we hire anybody new. Who can blame us for that?

But the relentless math of business means that if we wait for the money it will be too late. We will end up shaking hands and saying goodbye to some of the very people we need to make the company a success.

Just as we need to spend money for inventory to support increased sales we need to spend money to fund the people side of our business. These are both “critical expenditures” needed to equip the company to meet the challenges presented by a recovering economy.

James McCusker, a Bothell economist, educator and small-business consultant, writes “Your Business” in The Herald each Sunday. He can be reached by sending e-mail to otisrep@aol.com.

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