When the economy collapsed in 2008, it nearly took down ParsonsKellogg, a promotional products and apparel firm in Rhode Island. In the wake of the financial crisis, new orders were few and far between, and customers took increasingly more time to pay outstanding invoices.
Worst of all, an unpaid $1 million bill from their biggest client, General Motors, was looming overhead; GM was approaching bankruptcy, meaning ParsonsKelllogg might never see that money. I spoke to company president Tom Kellogg, who took the time to share his small business survival tips and explain how his company was able to hold on to become Rhode Island's small business of the year in 2016.
Understand the Need for Efficiency
Kellogg realized that if the business was going to survive, they needed to be more efficient with their spending. Unfortunately, this meant letting go of some staff. "I was told we had to lose 10 people or in the end we were going to lose everyone," Kellogg recalls.
"The people we let go were great employees, but some of them were not in the right roles at our company." He points out that all the employees who left ultimately ended up with different jobs, and in most cases, moved on to new roles that best fit their skills. One warehouse worker used this time to get his MBA and was actually hired back; he now works as the Director of Operations at ParsonsKellogg.
With fewer resources, ParsonsKellogg also had to be smarter about which orders they filled. "Before the recession, we didn't pay nearly enough attention to the numbers and took on orders that didn't really make sense. We were selling a lot but not making enough money on some deals," Kellogg says. With reduced staff, the company had to focus only on profitable orders and customers.
Depend On Your Quality Relationships
When times were tough, Kellogg was glad he had a strong relationship with his local banker. "We had a great relationship with our bank and they really came through for us." At the time, banks were calling in the lines of credit for many businesses, but ParsonsKellogg's bank kept their line open, and even provided a 60 day increase. "They were familiar with our business model and trusted in our ability to bounce back."
Take a Personal Risk for the Business
ParsonsKellogg ran into a serious problem when their tax bill came due. Kellogg's accountant detailed the difficult choice ahead. If he paid his taxes on time, he would run out of money and lose the business. If he paid a vendor for a key, upcoming deal and postponed paying the IRS, there was a 10 percent chance they could place a lien on his home — but he could save ParsonsKellogg.
"I decided to roll the dice, because otherwise I might lose the business. We paid the vendor, and put off the taxes. The IRS did place a temporary lien, which didn't make my family happy, but it turned out to be the right decision in the end." Taking this risk bought Kellogg just enough time to turn things around.
Just Hold On
"In the end, I just had to wake up every day and get back to work. Over time, it just got a little bit easier." Kellogg says that the company basically had no fourth quarter in 2008 and no first quarter in 2009, after which orders picked up little by little and clients began paying back their invoices.
ParsonsKellogg knew for certain that things were looking up in the second quarter of 2009, when a premium car brand came through with a big, two-year deal. They even agreed to prepay the purchase, which solved ParsonsKellogg's cash flow problems. Best of all? GM came through in the end and paid off their outstanding bill.
If your business is going through a tough stretch, be sure to keep ParsonKellogg's inspirational story and small business survival tips in mind.
ParsonsKellogg was a client of ADP, LLC. at the time of this article's publication.
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