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As a member of management, I have been informed that we are not doing too well financially for the past 5 months or so. The monthly income is just enough to settle everyone's salary. We have been trying to cut cost by dismissing interns and holding up purchases such as new equipment.

Recently, we missed an electricity bill and power was cut to the entire office.

If a junior member enquiries whether our company is running out of money, how should I respond?

Background info: "Management" includes boss, me and another person. We are a small startup company. Together we decide company strategies, hiring decisions etc.

mandy
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    you should talk to senior management (whoever told you the company is struggling) about what to ask, how to present the running of the company etc. They probably have ideas on this - unless I've misconstrued your question, and you are part of the senior management and are working out what to propagate to management on how to deal with the situation? – bharal Feb 26 '17 at 21:45
  • @bharal I edited to include some background info. There is no senior management to me except the boss. I can of course pretend I know nothing and answer "I don't know", but that's not the truth. – mandy Feb 26 '17 at 21:52
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    So, whatever you decide here you're deciding with the other members, so you provide a united front? – bharal Feb 26 '17 at 21:55
  • @bharal together the three of us ("Management") make "company decisions". Once we have an agreement, we present it to everyone. – mandy Feb 26 '17 at 22:00
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    Its technically senior managements decision on how to respond, but I would avoid out right lying. You may need some references when the thing goes belly up. – Mark Rogers Feb 27 '17 at 01:26
  • Instead of just cutting things, its time to a grow by spending more time finding new customers. Are your customers repeating? If not why not? Are all possible employees busy working based on income generating projects? If not, your clearly need more customers. If the problem is overcome able get a loan, else close up shop. – cybernard Feb 28 '17 at 03:39
  • Is the name of your company Entertainment 720? – Shufflepants Feb 28 '17 at 18:57

4 Answers4

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If a junior member enquiries whether our company is running out of money, how should I respond?

The entire senior management team (the boss, you and the other person) should meet immediately to discuss your financial situation - including how you handle questions.

If I were in charge, I'd hold an all-hands meeting to honestly discuss the state of the company and the company finances. I'd talk about where we are financially, what we have had to do so far, and what we plan to do for the foreseeable future. I would take questions, and answer honestly, including answering "I don't know" where appropriate.

I'd apologize for not informing everyone sooner, and for the sloppy handling of the electrical bill.

In such a small company, everyone should feel part of the solution. Thus, everyone needs to understand what is really going on, so they can make the proper decisions.

If a junior member enquiries whether our company is running out of money, how should I respond?

Assuming this question is asked during the all-hands meeting, if you are indeed running out of money, management should respond with "Yes, we are running out of money."

Hopefully management will be able to expand on that with the current burn rate, why you won't get to $0, and how you will turn things around.

Recently, we missed an electricity bill and power was cut to the entire office

Unless bankruptcy is imminent, there is simply no excuse for not paying the electrical bill. Someone doesn't know what they are doing.

Joe Strazzere
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    +1 for the last para alone! Not paying the electric bill is incompetence. – Martin Bonner supports Monica Feb 27 '17 at 08:42
  • Not sure why all the love for that comment. When struggling financially you prioritise bills. Normally utility companies are some of the less aggressive about late bills. In the UK you would normally have to be some months behind before being cut off. – paj28 Feb 27 '17 at 10:37
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    Didn't pay the bill ... *and* ingnored the reminder ... *AND* the final demand, I woudl imagine. THREE concious decisions. Way to not hide financial problems fotm the staff! – Mawg says reinstate Monica Feb 27 '17 at 10:56
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    @JoeStrazzere - so what, they should have missed the staff payroll instead? Or withheld taxes and gone to jail? Being in financial difficulty sucks, and the tone of your comment shows a lack of compassion for that. It sounds to me they got unlucky with the electricity rather than making particularly poor decisions. – paj28 Feb 27 '17 at 12:17
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    @paj28 electricity should be in the "absolutely critical" list of things to pay for. The general idea should be that if you can't pay all of those; you are already bankrupt. This sounds more like a failure to prioritize. Or the company isn't "doing poorly", it's doing its final spasms. – Erik Feb 27 '17 at 12:30
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    I found the statement of not paying the electric bill particularly troubling. Why? Because I have a commercial business and commercial electric service like any business should. I would have to go 5 months without paying anything at all before I would get cut-off. I am with a very large provider and they follow extremely closely what the electric industry does nation wide. Even then, just paying a partial past due payment should work and a payment plan with time to pay can be easily had. The situation may be more dire than the OP thinks. – closetnoc Feb 27 '17 at 18:02
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    It's not safe to assume that all utilities allow multiple late notices and grace periods. In some cases, disconnect orders are sent in as little as 15 days after a missed payment. – barbecue Feb 27 '17 at 19:01
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    @paj28, for almost any business, electricity is essential for getting work done. Keeping the bill sufficiently current to avoid a cutoff is more important than most other expenses (eg. senior management's salaries). – Mark Feb 27 '17 at 23:08
  • @JoeStrazzere not only simple, but so critical its payment should be set to automatic. (BTW, in my area companies send legal notices and disconnect orders as soon as possible so they can charge interests to your debt, so we set calendar reminders or pay online) – Trickylastname Feb 28 '17 at 01:51
  • @Erik - Fair enough. What you make me wonder though: what is not on the critical list? – paj28 Mar 01 '17 at 17:15
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    @paj28 most things beyond rent and utilities for your offices, the wages of your people and whatever tax you owe. – Erik Mar 01 '17 at 22:01
  • @JoeStrazzere I'm not the one who brought up the grace period. I'm just pointing out that it's not safe to assume you can be months behind without a disconnect. – barbecue Mar 03 '17 at 17:00
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In brief:

If you have a plan to get out of this, tell staff the company is struggling, here is the plan, please work very hard to make it work.

If you don't have a clue what to do, tell them the company is winding down, and to expect to be made redundant in whatever timeframe. Make sure you can pay them fully up until whatever timeframe it is!

Longer

Well, that's a crappy situation.

Normally when you get to this stage, its time to think about turning the lights off and exiting the company gracefully. Are you arranging a sale of all inventory/office furniture/releasing leases? If not, you should be.

You should also be doing all you can to raise funds (PE/VC maybe?) - but given that you're already in the "oops the lights are out" you might have left that too late.

What you tell staff now largely depends on what you've worked out as the way forward.

If you're just turning all the lights off, then let them know, let them know when their last day is, offer them help to get new jobs and make sure they get all their pay. They were never going to be billionaires if your company took off - they didn't sign up for risk, you did. So they should have their payments met ahead of you (as a presumable risk taker, and of course you are ahead of your boss).

If you have a maverick plan to set things right (or if this is a cyclical situation ~ and is somehow the first time you were aware of this- ok it's not cyclical, is it?) then you need to first start working on selling the company or IPOing or whatever.

And then once you have a plan on what to do when it all implodes, you work out your maverick plan, provide benchmarks against when the maverick plan is failing and so on.

If you do have the maverick plan, then tell your staff that your staff is floundering, and you really really need this maverick plan to work, and ask them to work their tails off for it. They probably will - nothing drives people together like a crisis.

But you owe it to yourself and everyone in the company to work out how to gracefully shut down and pay everyone their wages. Make sure you have that plan.

bharal
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    This answers the wrong question. The question was how a low-level manager should behave with the subordinates, and not what the owner should do with the company. – Val Feb 27 '17 at 07:22
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    @Val what? I think you're mistaken. When you're one of three ppl making decisions in a company, you are not low level. You're a senior member of the company, and OP clarified this in comments. – bharal Feb 27 '17 at 10:13
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You need to be worrying more about your own future. If the power bill isn't being paid, junior staff are the least of your worries.

But as management you never discuss finances with juniors unless it's your role. You refer them elsewhere.

If you intend to soldier on with the startup, then you need to show some guts to the rest of management. Salaries being paid is not going to get you ahead, it's treading water while flowing backwards. A committed higher echelon pays junior staff, pays bills, and then pays themselves out of what is left over if possible. If they're not, they're not committed enough.

A good worksman takes good care of his tools first.

Junior staff should have no idea you are living on noodles with ten cents to your name. That just destroys morale.

Kilisi
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    You're suggesting that management should go without pay in order to pay and maintain the junior staff? What about the morale of the management? – Brandin Feb 27 '17 at 07:26
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    @Brandin what about it? I been in startups, either you handle it or you don't. You have a lot to gain, and a lot of responsibility, if you're weak, you might as well give up now. It's a suggestion anyway, not expecting it to be a popular one. A good worksman takes good care of his tools first. – Kilisi Feb 27 '17 at 07:42
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    I downvoted because this answer starts off asserting that the OP should be more worried about their own future, immediately suggesting they shouldn't care about anyone else. It only becomes clear 3 or 4 paragraphs (half the answer or more) later than you mean they should be taking the hit. – jpmc26 Feb 27 '17 at 21:21
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    Recently read a story about how Elon Musk and his brother lived when they started up their first company in America. They would be the last ones to "leave the office", and would actually sleep on the couches there because they couldn't afford to rent a place. They would then make use of their gym memberships to go take a shower and change before the staff got in. No one had any idea their bosses were essentially homeless. That's the sort of dedication it takes to get a start-up off the ground. His reputation later served him well when investors backed his ideas. – AndreiROM Feb 28 '17 at 18:50
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If some of your staff are so clueless that they didn't even notice when the power was cut off, they are probably the best ones to get rid of to save money!

But being serious, the basic options are

  • Tell them nothing, don't answer questions, and let them assume the worst and take charge of their own future careers.
  • Tell them the truth (preferably including what action is planned to take to fix the situation) - and the smartest ones will probably still take charge of their own future careers rather than wait to see if the management team that got into this mess is capable of getting out of it.

In other words, having got into this mess, you might as well just look after yourself! Assume that whatever you do, you are going to lose your best employees pretty fast - if only because they are the ones who will be the first to get new job offers.

alephzero
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    Good point about the best employees, which, of course, only aggravates the situation and makes a recovery more difficult. You might want to offer them a pay rise, or a bonus if things turn around. That might help to keep some of them – Mawg says reinstate Monica Feb 27 '17 at 10:59
  • The point about the best employees only works in the US or other countries where employees can be laid off for free. In other countries leaving out voluntarily can cost a huge amount to the employee. – Pere Feb 27 '17 at 22:43
  • @Mawg pay rise from the company that looks to be out of money is worthless. upfront payment for X months might do the trick, maybe... – Mołot Feb 27 '17 at 23:51
  • @Pere In EU countries I was interested in, employee can give his notice, wait required time (from 3 days to 3 months, depending on circumstances) and just leave. Unless it was employment for a given time, for example 3 months or year contract. Is there any jurisdiction when employee can't quit?! Because this would pretty much look like slavery. – Mołot Feb 27 '17 at 23:55
  • Of course you can quit - everywhere, I would imaine (and hope), but I think that point that Pere is trying to make is that if you await and the company makes you involuntarily redundant then, in many countries, you will get good redundancy money (e.g. one week’s pay for every year with the company)., which you won’t get if you quit. Of course, 1) the company may not have any money left to pay redundancy money, and 2) since it’s a start-up, no one has been there long enough to accumulate much redundancy pay – Mawg says reinstate Monica Feb 28 '17 at 08:07