Lay offs: The Follow the Leader Philosophy

Each day we see more organizations that are in the process of a lay off of employees. It started with one organization and the cycle has continued daily. Is it really necessary for these organizations to lay off employees? That is a good question. Are these organization really in the financial crisis that they state or just “following the leader” so that the perception that they are in a financial crisis is displayed. Some organizations are indicating losses rather than profits. In some cases, this can be a falsehood.

Scenario:
Organizations predict their profit for the year. ABC Organization predicts that it will have a $1 million profit for 2008. The profit for 2007 was $500,000. ABC Corporation did not hire any new employees during 2008 and expenses remained constant. ABC Corporation has a $510,000 profit for 2008. The company indicates that it has a loss of $490,000 based on the fact that it predicted a profit of $1 million for 2008. However, the company really is sustainable based on the profit of $510,000 as the profit was more than in 2007 and covered the expenses and overhead that the company incurred for the 2008 year. The companies will layoff employees on the basis that they did not meet the anticipated profit for 2008.

Companies are laying off employees to follow the “current trend” of the market that formulates that the economic crisis is causing less of a demand for goods and services. While the unemployment rate is 8.5%, there are still 91.5% of the American citizens that are still employed. Therefore, there is spending that is occurring and businesses are still having some profit. It just is not the profit that they are predicting. The solution … reduce profit expectations to a realistic amount. Each year, corporations increase profit predictions by a “certain” percentage and when that percentage is not reached, then a loss is indicated. This is Accounting 101. As demand for products increased, companies increased their profit expectations. This cycle has continued for years and now that there is a “perceived” financial crisis, companies are using the “inflated” profit expectations to indicate that their company is in financial turmoil and to base the need for lay offs. When in reality, the company could continue with the current workforce based on the historical profit margins of the past and by maintaining current expenses. An Audit of the organizations would find that these organizations have significant reserves generated from years of profit that would provide the “capital” needed to sustain the organization and its current workforce without lay offs.