Holidays – Should the Company Take on Debt to Celebrate?

We’ve all heard about the family that spends a bit more than they should during the holiday season.  They charge up their credit cards a whole lot more than they normally do and then January comes.  It’s time to tighten up the family budget and start taking real steps to pay off their end-of-year debt.

But what about the company that uses a line of credit to pay for a once-a-year holiday party?  What about the business that goes into debt buying holiday gifts for each of its employees?  In both cases, company leaders may have lost sight of the entire forest as they focus too much on a few holiday lights in the trees.  Instead of zeroing in on the question of using loans to celebrate the holidays, businesses and their leaders would benefit from taking the time to examine the overall workplace culture as it relates to essential and nonessential business expenses.

This simple exercise could help prioritize and determine funding for both planned and unplanned requirements.  Usually, unplanned requirements are not positive and a couple simple examples are things like a key employee passing away unexpectedly or your arrival at the office to find ransomware has locked up the entire firm’s ability to operate.  Your company’s values and overall culture will also dictate how to handle these unplanned surprises, but it’s a different process than preparing for known, upcoming expenses due to their sudden and usually urgent nature.

Planned requirements, on the other hand, are things we can predict or we know they keep repeating on a particular cycle of time.  A great example is an end of year holiday party, but others are monthly rent payments, a bonus for employees reaching ten years of tenure, insurance policy payments, employee payroll, or a tax payment.  In the holiday party scenario where everyone knows it occurs each December, here are a few excellent questions to start that off right:

1. How does our organization prioritize planned requirements and the expenses associated with them?
2. How do we execute the spending processes within the organization so that the needed funds are in place for the most important upcoming requirements?
3. How do we determine which future expenses are essential to the firm’s operation and which are beneficial but unnecessary?”

These are questions of priorities and culture.  If a business leader takes the time to map out all the known, upcoming requirements, she can then focus on each one to grade it and give herself an excellent understanding of how important it is to the company’s mission.   Once it’s clear to her, then she is ready to share that vision with everyone in the company.  Communicating the firm’s priorities makes it obvious which is a bedrock item as opposed to a nonguaranteed benefit.  For example, the company’s payroll will always be covered but pencils with each employee’s name on it only get purchased if the company’s performance warrants it.

This exercise can be a lot more fruitful when you follow each requirement’s priority with the measurable company performance that sustains it and makes it possible.  For example, if the company has a profit of at least one million dollars, then the holiday party will happen.  When completed, this exercise yields the following data:

1. a description of each upcoming requirement;
2. that requirement’s expected cost;
3. a description of its priority (at least a binary grade of essential or non-essential); and
4. what measurable performance metric must be achieved to unlock each non-essential item

This document can be shared with others and referenced over and over again to help avoid the last-minute scramble to put together a holiday party that the company cannot afford.  Instead, everyone on the team would already know if they’ve earned a holiday party because they have been connected all year long to the goals that fund the celebration.  Of course, some companies might have a certain culture where a holiday party is actually an essential item.  For example, an advertising firm might gather their employees, clients and clients’ friends in order to meet future clients of the firm.  In this case, the end-of-year gathering is an important place to meet new prospects and begin the process of turning them into clients and growing the company’s bottom line.  Another example would be a travel agency that specifically sells a certain hotel’s experience as much as possible.  This travel agency holds their holiday party there at the hotel so the travel agents get firsthand knowledge of the product they are selling.

Leaders at the top should stop asking themselves, “Do we take on debt to have a company party?” Instead, they should ask their team, “Do you understand our priorities and where the holiday party fits in?  What is your role in making sure our company’s performance warrants a holiday party?”  When everyone in your workplace has a similar answer, you know you’ve done an excellent job of clearly communicating your firm’s expectations when it comes to planned expenses.  As you walk the halls and look into the cubicles and offices where your team works, if you see “The Company Guide to Workplace Priorities” displayed by phones or next to computer monitors, you know your staff is working toward earning their non-essential, planned benefits rather than just expecting a perk that perhaps the company cannot afford.

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