Walk the Walk to be the Boss

[don]

Entrepreneurs Cut Own Pay to Stay Alive

By SIMONA COVEL

A number of small-business owners have stopped paying themselves as they struggle to keep their companies afloat.

It's impossible to know just how many owners are affected. But in a sign of the breadth of the trend, 30% of 727 small-business owners and managers surveyed by American Express Co.'s small-business services division said recently that they were no longer taking a salary. That's a troubling sign for small businesses, which have created a significant share of the new U.S. jobs in recent years.

During past downturns, business owners might have turned to a home-equity line of credit, a personal loan or credit cards to shore up finances. But this time, real-estate values have plummeted, leaving many with less equity to tap, and bank credit is virtually nonexistent.

It's not uncommon for owners to give up salaries from time to time to give their companies a temporary lifeline, but business advisers and owners say the prevalence of salary cuts now is unusual even for a recession.
Robin Wilson, chief executive of New York interior-design firm Robin Wilson Home, stopped paying herself in February. Her company caters to well-heeled bankers and hedge-fund investors, but many of them have been pummeled by the credit crisis.

Last year at this time, the company was booked through the summer. Now, Ms. Wilson says, she's "desperate for work" after this month.
She is surviving on credit cards and says she probably can't qualify for a small-business loan in this credit environment. She has already laid off two and renegotiated payment terms with vendors, getting more time to pay bills.

Her nine-year-old company is actively hunting for an angel investor to infuse $250,000 into the business. "Plan B," she says, is to lay off a third employee, leaving three including herself.

During past slow times, Ms. Wilson says, she has withheld her own salary for perhaps a month at a time, catching herself up when business picked up. After the Sept. 11, 2001, terrorist attacks, she didn't pay herself for four months. But then, business picked up quickly.

This time, she says, "there are lots of clients who want [to meet with you]. Then they take three months to make a decision because they're afraid of losing jobs."

The company took in $505,000 in revenue in 2008 and didn't make a profit. Ms. Wilson says at the end of last year, she thought she could nearly double that in 2009. Now, she's just hoping to match it.

"The situation overall is more dire," says Jerry Silberman, chief executive of Corporate Turnaround, a debt-restructuring company in Paramus, N.J. Historically, he says, nearly half of his clients weren't taking a salary when they come through his door. Now, it's close to two-thirds. And if they do take a salary, it's often not enough to cover expenses.

Even some of those who complete debt-restructuring programs can't pay themselves, Mr. Silberman says, a sign that more businesses will be closing for good.

In mid-February, Craig Schoenberg stopped paying himself for the first time since he took over a residential remodeling business in St. Cloud, Minn., from his father nearly 20 years ago. "You pay the mortgage [on the office building] first and the light bill and the heat bill, and what's left is where you get your salary," he says.

Last year, the company's sales fell to $800,000 from $1.1 million in 2007. This year, he hopes to reach $600,000.

Mr. Schoenberg's company is being squeezed by the recession and the surplus of construction companies that sprouted during the building boom. Area contractors have dropped their prices significantly to get work. "Projects are going for less than my direct costs," says Mr. Schoenberg, who is resisting cutting prices and trying to promote the company's history and quality.

Schoenberg Construction has employed up to five workers during flush times. Now, it has three including Mr. Schoenberg, who is doing more of the physical work himself.

Inquiries have picked up in the past few weeks, he says, and he believes he can live off savings until late July. "There are a lot of companies in construction, but not a lot of them make it 35 years," he says. "It'll eventually turn. It has to."

Some executives are forgoing salaries to avoid deeper cuts elsewhere. William Leake, chief executive of Apogee Search Marketing, an Austin-based online-search marketing company, eliminated his own pay in February. He says he doesn't want to take money away from new-product development and fall behind competitors. "All those small-business books say, 'Pay yourself first.' [But] not paying myself enabled me to keep a couple of other people around," he says. "It's not [the employees'] fault that I bet on growth."

The move is also a message of solidarity to his staff. In February, the company laid off a sixth of its nearly 60 employees. "It's knowing that everybody's in this mess together," Mr. Leake says.

At the end of 2008 and early this year, Apogee lost as many as five clients each month. It has gained some new ones, but there aren't enough yet to make up for the losses, Mr. Leake says.

As a smaller-business owner, Mr. Leake says he knew he might have to pay himself less from time to time, but "I hadn't contemplated going six to nine months without pay."

http://online.wsj.com/article/SB1240...53150693.html#

One of EJ's tenets on a recovery is an increase in wages and salaries.....

[World Traveler]

Re: Walk the Walk to be the Boss

Last weekend at Sunday brunch, a friend told us that there had been an across the board wage cut of 5 % at their company. Employees were told that this was to avoid lay-offs.

This is a small local exploration/production company in Houston.

Which brings up 2 interesting issues.

1. Maybe they don't want to do layoffs, because they don't want to lose skilled people. This implies they expect higher oil and gas prices one-three years out.

2. a. Will the companies that have done wage cuts in this severe recession/depression restore them when the economy turns around? As in automatically increase all wages 5 % at some future date in this case. b. Or will the decreased wage level (95 % here) become the new base off which all future raises are calculated?

My bet would be most companies will opt for the later (2b). They, of course, will offer "reasons", like competitive pressures, blah, blah, blah. If oil prices go up, they probably won't get away with it in Houston, but in a lot of places, they probably would.

This would really the worst possible future, decreased wages and increasing living costs due to inflation. In some ways, it will be more of the same, that we have seen in U.S. last 25 years, with the exception of Wall Street and FIRE economy.

Simon Johnson said on Bill Moyers tonight that the financial oligarchy feels like they've won, so they're pushing back on any changes to credit card practices, etc. I think they're counting their chickens before they're hatched.

If the above scenario continues, Obama and the Democrats will have to make much more of an effort to address the concerns of American middle class and workers, if they want to stay in office. If they don't, Republicans will amp up the rhetoric, pretend to be concerned about the little guy and to be anti-Wall Street and FIRE economy (Rush Limbaugh, etc.), at least until they win the elections.

[santafe2]

Re: Walk the Walk to be the Boss

Overall, this is a whiny article. Entrepreneurs are supposed to build equity to survive downturns. Employees do not want to hear you whine about how hard it is or that you're paying them more than you're paying yourself. Most of those interviewed are not running businesses, they have a hobby that's gone wrong.

...30% of 727 small-business owners and managers surveyed by American Express Co.'s small-business services division said recently that they were no longer taking a salary. That's a troubling sign...

Is American Express going to be in business in five years? Do we care about their surveys?

During past downturns, business owners might have turned to a home-equity line of credit, a personal loan or credit cards to shore up finances.

During downturns business owners draw down capital and plan their next assault. These tourists are just pulling out their credit cards.

Her nine-year-old company is actively hunting for an angel investor to infuse $250,000 into the business. "Plan B," she says, is to lay off a third employee, leaving three including herself.

Excellent. This idiot has gone public with her intention to pick straws and hang one of the employees. My bet is that all three could run the company better than her.

Some executives are forgoing salaries to avoid deeper cuts elsewhere. William Leake, chief executive of Apogee Search Marketing, an Austin-based online-search marketing company, eliminated his own pay in February. He says he doesn't want to take money away from new-product development and fall behind competitors. "All those small-business books say, 'Pay yourself first.' [But] not paying myself enabled me to keep a couple of other people around," he says. "It's not [the employees'] fault that I bet on growth."

I'd work for this guy. The economy sucks and not getting a paycheck sucks, but the business is more important than a paycheck. I'm in charge and I take responsibility. When it goes well, I'll take some credit and when it goes to hell I've got a plan and some vision. I hired these employees so I know I need to keep them at my own cost or risk my company losing them. That's an entrepreneur. The others are hobbyists.

[petertribo]

Re: Walk the Walk to be the Boss

Lots of entrepreneurs round here in the boonies. There are two types: those who are above ground and those who are not. Most I know are uground or at least diddle some. Of course, it is the rapacious Govt which must feed the Big PAC Contributing Beasts who drive these folks uground. And Big Govt policies are to drive small biz outa biz especially where Big Biz can take over through franchising or some other centralized biz model. That Big Mac means Big Debt for Wall Street to get its meaty chops into.

It would be a logical result of a Depression that the Underground Economy would expand big time. Has American Express surveyed that phenom?

[GRG55]

Re: Walk the Walk to be the Boss

Last weekend at Sunday brunch, a friend told us that there had been an across the board wage cut of 5 % at their company. Employees were told that this was to avoid lay-offs.

This is a small local exploration/production company in Houston.

Which brings up 2 interesting issues.

1. Maybe they don't want to do layoffs, because they don't want to lose skilled people. This implies they expect higher oil and gas prices one-three years out.

2. a. Will the companies that have done wage cuts in this severe recession/depression restore them when the economy turns around? As in automatically increase all wages 5 % at some future date in this case. b. Or will the decreased wage level (95 % here) become the new base off which all future raises are calculated?

My bet would be most companies will opt for the later (2b). They, of course, will offer "reasons", like competitive pressures, blah, blah, blah. If oil prices go up, they probably won't get away with it in Houston, but in a lot of places, they probably would.

This would really the worst possible future, decreased wages and increasing living costs due to inflation. In some ways, it will be more of the same, that we have seen in U.S. last 25 years, with the exception of Wall Street and FIRE economy.

Simon Johnson said on Bill Moyers tonight that the financial oligarchy feels like they've won, so they're pushing back on any changes to credit card practices, etc. I think they're counting their chickens before they're hatched.

If the above scenario continues, Obama and the Democrats will have to make much more of an effort to address the concerns of American middle class and workers, if they want to stay in office. If they don't, Republicans will amp up the rhetoric, pretend to be concerned about the little guy and to be anti-Wall Street and FIRE economy (Rush Limbaugh, etc.), at least until they win the elections.

As someone in the industry you'll understand better than most that an across the board 5% wage cut in most E&P companies is a virtually inconsequential step...largely a symbolic "belt-tightening" message, but it does help to keep people if the downturn is very short [something I've never seen in this industry; the downturns are always longer than expected, aren't they].

Unlike businesses such as airlines or restaurants, where labour is one of the top cost catagories, the amount of capital that cycles through even a small E&P company means that wages and salaries are not normally a large part of the annual budget [unless it is a really small company]. This is one of the reasons the oil and gas industry can generally pay above average compensation...when times are good.

The hit in E&P comes when there's much less [or no more] capital available to spend...at which point we geologists, geophysicists and engineers truly become redundant. When things hit that point wage cuts don't do anything...one is forced to get rid of people because they have nothing left to do. And that's what's going on in many E&P companies right now.