Reflexite’s Chart of Options Before Downsizing

DEFINITION

SYMPTOMS

ACTION TO BE TAKEN

EXPECTED RESULT

STAGE I:

Sales below budgeted sales but ahead of the same period in prior year.

1. Bookings below plan for four weeks or more.
2. Field reports confirm it.
3. Backlog levels off.
4. Large order levels fall.
5. Book-to-bill ratio falls below 1.
6. Profits below plan.

1. Defer some budgeted hires.
2. Defer some budgeted activities.
3. Heighten awareness of current situation.
4. Discuss at staff meetings.
5. Monitor overall economic conditions.

Adjust revenue and expenses to meet plan. Preserve all jobs and expected future stock value.

STAGE II:

Sales and profits below prior year for a period of one quarter or more.

1. Bookings below plan for one quarter or more.
2. Profits below prior year
3. Backlog declines 15%.
4. Incentive pay on sales slips below plan.
5. Larger customers’ businesses decline or develop credit trouble.

1. Revise Selling, General and Administrative (SG&A) expenditures.
2. Revise forecast.
3. Solicit ideas to cut costs, improve productivity and efficiency from employees.
4. Cut overtime.
5. Cut discretionary spending.
6. Redeploy sales force.
7. Increase cold calls.
8. Accelerate new product introductions.

Same as in Stage I.

STAGE III:

Business operates at break-even level or generates losses of less than $100,000 for a period of one quarter or more.

1. Backlog declines 30% from previous high.
2. Bank loans increase.

1. Solicit ideas to cut costs, etc. from employee-owners.
2. Voluntary leaves and furloughs.
3. Voluntary leaves and furloughs.
4. Hiring becomes the exception.
5. More reduction of SG&A expenditures.
6. Increase management attention.
7. Monitor Stage II actions for results.
8. Defer lower-priority capital items.
9. Introduce a more aggressive revenue-generation strategy.
10. Price cuts on specification items.
11. Sales of obsolete inventory.
12. Offer extended terms for new business.
13. Accelerate new product introductions.
14. Delay refilling of vacated positions.
15. Accelerate capital work with less than one year payout.
16. Defer raises.
17. More rigorous performance reviews.
18. Defer or reduce salaries for highly compensated employees.
19. Reduce hours.

Revise plan to meet revenue expectations. Preserve jobs. Expected stock price above last year but below planned value.

STAGE IV:

Business generates losses for a period of two quarters or more.

1. Lose customers.
2. Lose technological lead.
3. Core products lose market share.
4. Banks look at loans’ status more carefully.
5. Suppliers don’t send materials due to unpaid or late-paid invoices.
6. Stretch out payments to suppliers.
7. Lose good employees.

1. Salary deferments or reductions for balance of exempt employees.
2. Trim benefits.
3. Early retirements.
4. Voluntary resignation offering.
5. Layoffs.

Downsizing required. Some loss of jobs. Stock price falls below prior level.