Thursday, February 5, 2009

Leadership After the Layoff--A Financial Plan is Key

You had to do it. You had more staff than work, and your cash flow was not going to be able to support everyone you had hired for much longer.  You gear yourself up and let some of your closest friends and colleagues go.  Then you realize your most difficult job still lies ahead - retaining your remaining staff and their morale!

After reading Leadership After Layoffs I thought about the many companies that have laid off or will need to lay off employees.  There has been and will be a lot of material written on how to communicate with the remaining employees after the layoff.  But far too little is written on the need to formulate a financial plan to survive the layoff and return to prosperity.

Does the CEO really see how the layoffs will solve the company's cash flow and profitability issues?  Can he/she confidently explain to the remaining staff why these cuts were just deep enough but not so deep that the company's hallmark way of taking care of its customers will not be in jeopardy?

With a sound and reasonable financial model that accounts for the "before" and "after" effects of the layoff, a business owner, entrepreneur, or CEO will be able to communicate with honesty, transparency, and confidence.  A leader should have the financial model/plan in hand when he/she meets with the remaining employees.  The leader should be able to say something like this: "If we can realize at least $50,000 per month in sales for the next 12 months, we will not have to make any more changes in staffing."

Such communicating will begin to rebuild the trust of the remaining workforce who just saw their friends and colleagues escorted from the building.  If the leader fails to communicate specifics and refers to the future performance of the company in vague terms, the employees will continue to lose their trust in the company.  Productivity and morale will drop and the company's chances for survival become much less realistic.

It is my experience that when a company has a sound financial plan for rebuilding the company after a layoff, the productivity and morale of the remaining staff actually increase.  This improves the firm's chances for success and helps its comeback as a leaner, meaner, and more nimble firm that adds even more value to its current and future customers.