Sell things for what they’re worth

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Our salesperson likes to discount things, especially add-on services, which are a really big profit margin for us. He’s even told some clients we would do it at cost. We need to fix this now because he’s starting to make headway in sales. Bigger accounts are coming in and we could end up losing a lot of profits.

Thoughts of the day: How much does your salesperson know about how your business makes a profit? Is your salesperson calling on the right class of customers? Equip your salesperson with an effective information-gathering approach. Check that everyone is clear on what the goals are. Use reporting to evaluate and learn from results. Make sure there’s a plan to get more referral business from the best customers.

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Using key measures to make a profit

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We’re having trouble making a profit right now. Invoices are up this year, but so is payroll and just about every other expense. If we can’t make money, what’s the point?

Thoughts of the Day: Growth needs a plan in order to get things to turn out right. Figure out what you really want. Don’t try to get it right all at once. To get where you want to go, put someone in charge of managing finance.

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Keeping the Nest Egg Intact

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I don’t want to save money and then spend it to get through our slow months. Every year it feels like we give back all our profits when it gets quiet. Help!

THOUGHTS OF THE DAY: Savings are essential. So is fiscal discipline. Know what you can and cannot afford to do. As the business grows, be careful not to increase volatility. Consider getting into complementary business.

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How to Balance Benefits and Profits

We’re not sure what to do about health care. We’re worried about getting hit with increases in premiums this year, which could eat into our profits. How do we sort it out?

Thoughts of the day: Figure out what your company can and can’t afford to pay. Health care has been in constant change for the last several years for every company — it’s time to discuss that reality with your employees. Considering encouraging employees to turn to your state’s exchange for insurance? Be sure you have someone lined up who can help explain all the policy options. Make sure you can explain what you’re doing and why.

Look at your ratios. Set a target range for all salaries and benefits calculated as compared to revenue and to gross profit. As you consider adding or adjusting benefits, and paying out bonuses, make sure that your changes don’t blow the target ratio.

Ideally, any growth in benefits and bonus payouts comes from growth of the company. Forecast increases in revenue and gross profit, and figure out if you’ll need any additional personnel. Deduct that increased personnel plus any material costs from the increase in forecasted revenue and gross profit. What’s left over is the amount of income you can use to build up profits, pay additional benefits and bonuses, invest in savings and infrastructure and use to pay taxes on profits.

Not sure whether your salaries and benefits are in line with your industry? Turn to your industry association for advice and benchmarks. Some industries have stats posted online, so check that as well. You can also contact peers in your industry across the country and ask them what they’re spending. Keep in mind that both coasts tend to have a higher cost of living.

Many companies struggle as they take on additional health care costs, benefits and pay increases without sufficient revenue growth. If that’s a problem your company is facing, be honest about what’s going on before potentially sending the company into a financial black hole.

Raises and additional benefits should happen as a result of increased profits. Over the past several years, companies have had to absorb a number of mandates regarding how employees are paid and what benefits they receive. The cost of these mandates is equivalent to annual cost-of-living pay raises and then some.

Many companies have taken on substantial increases in cost of pay without seeing significant growth in revenue or improvement in profitability through increased productivity.

Show your employees how much the company pays on their behalf, above and beyond salary. Start with federal insurance and unemployment contributions; don’t forget to add in the costs of medical, dental and life insurance, child care, time off from work, and any other benefit programs your company provides.

Have a rationale and set limits on how benefits are distributed and paid for. The simplest way to handle health care is to pay for the company’s individual premium or a percentage of that. Employees who want to elect more coverage for their family can do so and use a portion of their paycheck to cover the cost.

Be careful when considering higher benefit costs for managers. Keep in mind that managers tend to be more expensive in salary. Loading additional costs onto an already expensive manager may make that person so costly that they can’t prove they can deliver enough profits to allow the company to break even.

When getting ready to give out raises, calculate the raise as a percentage of the existing salary. One company decided to give employees an hourly raise, without realizing it was a 10 percent to 15 percent increase in pay across the board. They would have been better off giving this money as a bonus and making it clear to employees that it was only going to continue if profits stayed up.

There are some great reasons for providing employees with benefits. Employees who take time off regularly tend to be significantly more productive. Those who can afford to see a doctor regularly are more likely to be healthy and productive. Employees who can afford to stay home when they’re sick recover more quickly. Employees who know their children are safe are less distracted. The list goes on.

Looking for a good book? Try “The Employee Benefits Answer Book” by Rebecca Mazin.

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Getting Paid in Tough Times as an Owner

The business has been struggling. And consequently, so has my family. Things got really bad at home when I had to suspend my salary and didn’t take any distributions. We’re working hard to get things to turn back up, but I’m still not comfortable. I expect that as sales turn back up, things should get easier. We can hold off on paying down the credit line for a while, which means I’ll be able to take salary again. Am I missing anything?

Thoughts of the Day: As an owner you have to think about who comes first – you, or the company that feeds you. Making decisions based on the Income Statement and ignoring the Balance Sheet can be very dangerous. When things get tight financially it’s important to figure out how long it will take to turn things around.

Ownership of a business is both a privilege and a responsibility. Nurturing the business, insuring it grows, thrives and stays healthy is not only good for business, it’s also good for the owner’s pocketbook.

In times of stress, it can be hard to be objective about personal needs versus business needs. Family is important, so is the business, but which comes first?

For most business owners, their company is their primary source of income. Household expenses may seem urgent. But taking money out for household spending and leaving the company under-funded can be deadly for both home and business. Making sure the company is healthy means your family will be able to prosper as well.

One way that business owners get into trouble is looking at the net income left over on the Profit and Loss Statement and ignoring the Balance Sheet. Thinking that you can go back to taking money out as soon as sales improve overlooks the need to deal with diminished resources. That story is told on the Balance Sheet, which shows the fiscal health of the business.

Not sure how to read the company’s balance sheet? Get someone to explain it to you. Do you have enough cash on hand to weather 6 months of problems? Are current assets twice what current liabilities are? Are debts below 2.5 x equity? Has debt been dropping? Have you successfully invested over the years in the company’s future? Is equity rising?

Take a hard look at how the business got to this difficult spot. Lack of success stems from years of missteps. When things go upside down in the business, and there’s no more money to pay out, it’s time for drastic re-evaluation.

Get perspective, from outsiders who you respect, ask for their opinions. Listen, even if you don’t like what you hear. Use their advice to refocus by figuring out what gets you to the end goal, rather than what gets you through tomorrow.

Deal with hard choices. Stop spending on things that drain cash and don’t contribute to profitable growth. Explain to family members that cuts have to be made. If you lost your job – or lost the company – you’d be making cuts. Do so before it comes to that.

Be realistic, how long will it take to get from where you are today to where you want to be? Prioritize rebuilding the company over personal comfort. Give your company time to heal permanently.

Most research on happiness says that the more things people acquire the less happy they become. Brainstorm other ways to have positive experiences that bring you joy. Go for a walk. Have a picnic in the park. Drive to the beach for some sun and fresh air. Spend time helping a friend. Read a book. Listen to music. Low cost / no cost solutions for the mind and soul can help improve your outlook as you re-focus on rebuilding the business that has provided you with so much.

As an owner, getting paid by the company is a privilege, not an entitlement. First you have to pay to operate the business – payroll, equipment, materials. Make enough profit to pay taxes, invest in constant refreshment of the company, build up reserves and pay off debts according to plan. Then, and only then, can you, as owner, afford to take money out of the company for personal needs.

Looking for a good book? Happy at Last, The Thinking Person’s Guide to Finding Joy, by Richard O’Connor.

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