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Their Hardest Day

The economy's downward spiral is forcing many small businesses to make some tough decisions.

One such company, San Francisco hardwood flooring installer Tree Lovers Floors, is all too typical.

CBS News correspondent John Blackstone was there as its owners, Chris and Janet Hildreth, agonized over laying off almost a-third of their workers.

Both were already up at 5:30 that recent morning, and neither had slept much overnight.

This was when they had to face a hard reality of the stumbling economy.

"It's gonna be a matter of making payroll, anyways, Janet," Chris remarked over breakfast. "That's what it's gonna be in the end."

Tree Lovers Floors, Blackstone explained, was running out of money.

"This is just the first step in the real struggle that we're gonna have to face," Janet said.

Their struggle that morning was over drawing up a list of workers to let go.

"I think he would survive," Chris told Janet, referring to one employee. "He would land on his feet out there more, and I almost feel that's a reason to pick him."

Some of Tree Lovers' employees have worked for the company for decades.

Chris says they're all among the best hardwood floor installers in the city, but at least a dozen of them hade to go.

So, heading to the office that morning, Chris and Janet were facing a task becoming all too common for small business owners across the country -- telling loyal workers there isn't work anymore.

"Frankly," Chris explained to his assembled workers, "the phone is still not ringing. We have about a third of much work as we had last year at this time."

Then they found out who wouldn't be getting a paycheck any longer.

"I've made a list of the guys to lay off," Chris said, " ... I'm gonna speak to you individually."

It was, observed Blackstone, the hardest list he ever made.

"Those people are going to go home today and tell their wives and their kids that they were laid off, and I feel sick about it," Chris said.

He and Janet feel as if the financial system has failed them, too. They had a line of credit set up to help them get through slow times without laying anybody off.

But in the current credit crunch, their credit lines disappeared.

Janet says she "had a home equity line of credit for $50,000 ... that got frozen. I had a $30,000 business line of credit that got taken away because I haven't used it."

So, they're struggling to keep cash flowing through the business while they wait for money owed them to come in.

"We've taken a pay cut," Chris says.

"We're looking at using Christopher's life insurance policy at this point" Janet added.

"The annuity, yeah," Chris says, "to make ends meet."

It seems to have become a destructive circle, Blackstone points out: Money is tight, so people aren't spending, workers get laid off, and now they can't spend.

Jose Rodriguez, 20, is one of the workers Chris and Janet laid off. He'd been working for them for just over a year.

"It's been like slow for awhile," he says. "And I have a baby I gotta take care of."

Concludes Blackstone: One more worker with no paycheck, one more small business trying to survive. One more business fearing the worst isn't over.