Your employees make a lot more than they think they do. The next time they complain about not taking home enough, you might want to remind them how much you are actually paying to keep them gainfully employed.
We have created a simple spreadsheet that will help you determine how much each of your employee really “earns.” You can download this spreadsheet atCompensation Calculator. Some are in the form of benefit programs like health insurance, and others are through statutory benefit programs like social security and medicare. With some help from your accounting staff and/or payroll company, you should be able to complete most of the gray boxes on the spreadsheet. Then it will figure out the rest.
Did you know that almost 30% of the average total employee costs are for the extra stuff in excess of salaries, wages, and bonuses. Click here for a free Total Compensation Calculator. This calculator, which is in Excel 2007 format, will show you how much of your total employee costs are going toward all of the extras.
Do you know how much you are spending, in addition to annual salaries and bonuses, you are spending on your employees? Are you using this information to accurately forecast your expenses and cash flow in the future. I often see this part of a company’s projections overlooked even though it is often one of the company’s largest expenses next to wages themselves.
So, the take-away is two-fold. First, download this spreadsheet and figure out how much your employees really cost you and then use that in your planning and forecasting. Second, use the spreadsheet to educate your employees about the total compensation package they receive because of their employment with you. Even if they do not believe in or buy-into all of the programs and initiatives, the cost is still real – and you need to get credit for it.
Rising health care costs and vanishing profits have led many small businesses to cut back their health care benefits to high-deductible HSA plans that cover mostly catastrophic events and not much else. Although these plans can make sense to help bolster profits in the short-term and can be popular among younger employees it can become a disadvantage to your firm when labor markets reverse and employers again need to look for competitive advantages when hiring.
An ever-growing section of the labor market has become increasingly more interested in a full-benefits package rather than the size of their paycheck. A growing segment of the workforce is looking at an increasingly distant retirement date, worried their nest egg could vanish at the appearance any medical condition that will require ongoing treatment with a hefty prescription bill to boot. There are many well-seasoned and experienced professionals willing to work for the benefits package rather than higher wages.
Hanging on to your benefits package will give you an opportunity to scoop up these valuable employees at bargain prices when hiring becomes difficult again.
Sports teams compete against each other and they keep track of the score. They know who wins and who loses, and each player on the team has more statistics on their performance than they know what to do with. Individual sports athletes, like golfers and runners, meticulously measure their performance against themselves and others and use their numbers to find ways to improve.
Is running a business any different? Is there a way to know if you win or lose each day? Each week? Each month? Each year? The answer to all of these questions is yes, and I write about how to accomplish this in my recent American Express OPEN Forum Article: 4 Reports that will Keep Your Business Thriving.
Every business should project its cash flow at least 90 days into the future. It should be broken down weekly and should be reviewed and updated weekly. Microsoft Excel is often an adequate tool for this important weekly report.
2 weeks ago I was one of 26 14-18 year-old boys, youth leaders, and fathers that embarked on a 63-mile 5-day backpacking trip in the Uinta mountains. King’s Peak, the highest mountain in the state at over 13,500 feet in elevation, was just one of the many challenges of the week. Here are some important lessons we learned, and how they apply to our businesses:
Lightweight Business Model
When I prepared my pack for this grueling adventure, every ounce counted. And trust me, by the last day I felt every fraction of an ounce. I started with the staple needs – tent, sleeping bag, stove, water filter, headlamp, etc. Regardless how many days I would be gone, I would need the same amount of these items (one tent, one sleeping bag, etc.). These are like the fixed costs in your business. We want them to be as light as possible, because we will be adding more weight to them per day we are gone – changes of clothing, food, fuel, and more. A lightweight business model is one that does not over-burden the business with heavy fixed costs and tries to structure itself to function, as much as possible, on variable costs. The lighter the fixed costs, the lower the break-even point and the more flexible the business will be to change its course and take advantage of the right opportunities as they come along.
Foundation Determines Success
I quickly learned that feet, the foundation of the body, were the most important part of the body on this trip. One person bought a new pair of shoes 2 weeks before the trip and had several blisters after just the first day of hiking. He was plagued by these and the rest of the blisters that appeared thereafter throughout the duration of the trip! He had to go much slower than the rest of his body wanted because of the pain from these blisters. Those who experienced the least amount of pain and enjoyed the most comfortable experience were those with the right shoes and socks and they worked to keep their feet dry while hiking (we were rained on every day, with the worst torrential downpour I’ve ever experienced on Friday) and warm at night (temperatures dropped into the thirties each night). In business, we have to strengthen and take-care of our foundation, which is usually a combination of working capital, the best employees, and our customers. Without these three things we are in for a very painful business experience.
Difficulty is in the Eye of the Beholder
We hiked 12 miles on Monday, 15 miles on Tuesday, 7 miles on Wednesday, 13 miles on Thursday, and 16 miles on Friday. Before Monday, the youth would complain before a 5 mile hike. By Wednesday morning, after days of 12 and 15 miles, respectively, 7 miles was the easiest thing they had ever heard of. Comments like, “Oh, we only have to go 7 miles today,” and “Today is going to be a piece of cake,” became the opinion. The business application – what may look difficult today is likely not nearly as difficult when put into context. You may be going somewhere you and your team have never been, but few challenges end up as hard as they might initially appear.
Snapshots are Less Valuable than Overall Perspective
Kings Peak is not all that intimidating when you are next to it. On Wednesday night we camped just south of Kings Peak in Painters Basin, only about 2,400 feet lower elevation than the peak – it would take a hike of just over 3 miles to summit the next morning. What was interesting was the reaction of the youth. “That doesn’t look like the tallest mountain in Utah,” one young man offered. How quickly they forgot how far and how high we had to hike just to arrive at that point. Just two days later we would finish our adventure at 7,800 feet. The point is this – our perspective is often limited to the immediate surroundings of that at which we look. We need to broaden our perspective so we can see the whole picture of our business.
Conclusion
One of the leaders on this trip frequently said that it would not be an adventure if we knew the outcome. Starting, owning, and running a business is, therefore, an adventure. With these four lessons learned, we can hopefully create the outcomes we desire!
Very few business owners are thinking about taxes in August. Even if they extended their returns, the deadlines to file corporate and personal returns are in September and October, respectively. With no urgent deadline to meet, business owners are happy to not think or worry about taxes and focus on other parts of their business.
We are experiencing a never-before-seen phenomenon. The first version of the video below was powerful, but this second version really drives the point home – the ROI of Social Media is that you will still be in business in 5 years.
Compliance is not very interesting or fun according to most entrepreneurs or business owners. That’s why they usually put off discussing taxes until the very last moment possible. Not only does this usually cost them more in taxes, but the entire process can be one of the most compelling things they do, if they do it right.
In a recent article I wrote for the American Express OPEN Forum, I share 4 Tips to Get the Most From Your Tax Planning. In addition to using the right professionals, defining objectives, forecasting, and the right timing/frequency, I want to address one more element that underlines why so many fail to properly plan to save taxes – complexity.
Most businesses are complex organisms with many dynamic and ever-changing components to them. It is hard enough to build a business in this difficult and extremely competitive and often litigious economy. Most business owners and entrepreneurs are juggling many priorities, initiatives, and tasks to try to maintain or maybe even grow their businesses. Adding another complexity, planning for tax, is often neglected with one of the following statements:
“Why should I plan for tax? I will just pay what I owe, and planning cannot change how much income I make.”
“I cannot understand why I have to pay more in taxes every year than I have brought home from my business. But I just pay it because my CPA tells me too.”
“Every year is a big question mark on what amount I will put on the check to the IRS. I don’t understand it, but I pay it and hope the IRS does not audit me.”
Just typing those often-uttered sentences makes me cringe. If you don’t understand taxes, then it’s time to start. I’m not suggesting you become an expert, but the principles are not complex in theory, just in practice. Understand the theory and take ownership of your tax situation. It needs to be a priority to you because it is one of the major cash outflows of every business (and business owner).
Sorry, that was a little bit of a rant, but claiming ignorance is not a valid excuse, in my opinion. Rely on your tax CPA and/or advisors to help you understand. If you cannot understand them, then fire them and hire some who you can understand. The point of all of this is that shying away from taxes and tax planning because they are complex is not acceptable.
Some tax planning strategies require adding some complexity to a business, and this is OK as long as the tax savings are far in excess of any extra costs to handle the additional complexity. Embrace the complexity of taxes and tax planning and you will see your cash flow improve!
Since the beginning of my career in the 1990s, I have been a student of sales and marketing, especially in the professional service space. I decided to create a list of my favorite books on this subject since I have been sharing it with more and more people recently. Here is the list, in no particular order, with a link to Amazon that will tell you more about each work and the contents therein:
1. Conceptual Selling: The face-to-face sales formula that helps leading companies stay on top – This was the second or third sales books I read (it is an oldie but a goodie) when I took an advanced sales and sales management course during my business undergrad at BYU. It opened my eyes to how to succeed at sales.
2. Professional Services Marketing: How the best firms build premier brands, thriving lead generation engines, and cultures of business development success – just the results of a study the authors conducted on the different methods that buyers use to find potential service providers makes this book worth the read, let alone the rest of the valuable content.
3. Marketing Your Services: For people who hate to sell – One of my favorite parts of this book is how it teaches the educational approach. This refers to approaching others in a non-pushy, relationship-building, helpful, and consulting way.
4. Trust-Based Selling: Using customer focus and collaboration to build long-term relationships - I appreciate what this book teaches about focusing on the customer using the principle that we enrich our own lives when we focus on others. Collaboration and transparency are also strong messages of this book, which are critical in the professional services marketing and sales and cycles.
5. Silver Bullet Selling: Six critical steps to opening more relationships and closing more sales – I am a big fan of what this book teaches about pre-call planning and follow-up.
6. Guerrilla Marketing for Consultants: Breakthrough tactics for winning profitable clients – I am converted to what this book calls the 800-pound gorilla of marketing professional services. I’ll let you read the book to find out what it is.
7. Secrets of Question Based Selling: How the most powerful tool in business can double your sales results – I think the author identifies 156 secrets throughout this great resource. Here is just one gem – Without needs, there are no solutions; and without solutions, it’s virtually impossible to establish value.
8. Million Dollar Consulting: The professional’s guide to growing a practice – This is one of my favorite resources. Just one quick quote from it: “Paradoxically, the longer you take to establish a solid, trusting relationship with a buyer, the faster you will obtain high-quality business.”
9. Rainmaking Made Simple: What every professional must know – Two of my favorite pieces of advice from this book are the statement that the largest single failing of professionals going into marketing meetings is their lack of preparation and this quote: “If you always seem to be bombarded with objections, you are probably making the classic selling error of telling more than asking.”
10. Integrity Selling for the 21st Century: How to sell to people the way they want to buy – I think my favorite part of this book is the way it teaches that selling is not about being something or someone we are not. It’s about being ourselves and doing the things that we know to be right, including looking out for and serving the best interest of our clients.’
I could certainly keep going, but I will stop here for now. Does anyone have a book they would like to recommend?
[Author's Note: This post is not about the Twilight Series' release of its third movie. I do, however, admit that my wife took me to the first two and will likely take me to the third soon.]
At 4:17am on Saturday, June 26th 2010 I saw the beginning of a lunar eclipse. I was on an early-morning (or more like a middle of the night) hiking trip and we stopped to watch this rare occurrence (this was the first of only two this year). What we initially saw was unimpressive. At first, a dark cloud seemed to cover the upper arc of the moon. The earth’s shadow was barely beginning to interfere with what appeared to otherwise be a full moon.
As the morning carried on, the eclipse continued to black-out a quarter and then an entire half of the moon. I have never seen anything like this before – it was amazing to watch. If I was not aware that we were expecting a lunar eclipse, I may not have even noticed this phenomenon. I wondered how many people, not knowing it was supposed to be a full moon, might have looked at the moon in those early morning hours without realizing what they were seeing.
Then, I couldn’t help but relate this to one of the common business problems I see. Many businesses will occasionally look at their numbers (in the form of financial statements or some other form of dashboard/KPI data) but the data and information they are looking at is not meaningful and is not helping them improve their business. Why? Because they lack context and comparison. I took several “snapshots” of this event throughout the morning and ultimately I could comprehend what was happening.
Just as I grew to appreciate the eclipse as I saw it progress, others who perhaps only briefly looked at the moon once at any time that morning likely missed out on the eclipse altogether. So, how do we solve this? We have to put the numbers of the business into context against where we have been, where we are going, and what our competitors and industry are doing.
We refer to this as comparative analysis, and it works as simply as this. If we generated $250,000 of sales this month, is that good or bad and what can we do to improve it? First, we should understand what we have done in the past (last month, last year, same month last year, etc.) to understand if we are growing or shrinking. Then we should compare it to what we were hoping to accomplish that month and if those sales are helping us to or hindering us from getting where we are headed. Here’s an example: if we had sales in the same month of the prior year of $200,000, and last month we had sales of $230,000, and we were planning on $240,000 to achieve our goals for the year, then we can call $250,000 in sales a very good month.
While this revenue example may seem very simple and like most businesses do some type of similar analysis, we need to consider if they are doing the same analysis on their lead generation, conversions, operational efficiencies, and other financial metrics. This will truly put the entire month into perspective in terms of our performance with one exception – industry benchmarks.
How are we doing relative to others in our industry? As much as we may claim to have an innovative business model, the truth is that business models have been around a long time and there is very little innovation possible (although there is at least a little). Even if we feel we are better than our competitors, we can still learn from their numbers and we can use them effectively as benchmarks for our own performance.
Are your numbers deceptive like a lunar eclipse? Avoid the deception with comparative techniques that will make your numbers more meaningful. Ultimately, the more meaningful your numbers are the better decisions you will be able to make, which will help you improve your cash flow and profitability!
As my children split the earnings from their first lemonade stand just a few days ago, I couldn’t help but take the opportunity to teach them a little about entrepreneurship. Here is their grade in 5 critical areas of running a business, with some application for all business owners and entrepreneurs to consider:
I recently read a book, Built to Sell by John Warrillow and spent a few moments reflecting on the challenges facing some of the clients I work with.
In the book Mr. Warrillow proposes that to sell a business you basically need to build a structure that can exist and continue without your day-to-day involvement. As I thought about some of the experiences I’ve had lately I wondered about a practice where the owners generate most of the income. Unfortunately whenever they are sick or on vacation top line revenue suffers. Another business owner spends 70 – 80 hours a week at the office working to keep things “running smoothly”. Conversely, a good friend has been out of town for two weeks now and his company has continued to see steady growth week after week.
I think that as a business owner it becomes critical to pause and take inventory of where you are, and ask yourself, “am I building a business or have I just created my own job for myself”. Creating your own job can be OK, as long as you recognize that’s what you’ve done. If, however, you have dreams of someday selling your company, or living a life away from the workplace you should strive to build a company where YOU don’t need to be there.
There seems to be a lot of buzz around businesses having a dashboard. Even Intuit has jumped on board and tried to provide this functionality in QuickBooks with its Snapshot Center. For those unfamiliar with this concept, a dashboard is one place a business owner should be able to look to see all of the key metrics and performance indicators of their business. To learn more about this concept, please visit my blog post: The Key Business Metrics Every Entrepreneur Must Know.
I recently read John Warrillow’s book Built to Sell: Turn Your Business Into One You Can Sell. It is a great resource for anyone that is building a business that they plan to exit by selling it. The book focuses on 8 steps for helping business owners maximize the value of their businesses when they sell.
