There is little more disappointing than seeing a great business idea in the hands of an enthusiastic entrepreneur tank because of overspending. There are many things that would be great for your business if they were free, but spending money that does not translate into revenue can hurt your chances of success and instead drain your precious resources. Here are a few things that most small businesses that are gaining traction really don’t need and too many have:
Many entrepreneurs begin their businesses without a mentor or a business degree. They break into business with passion and determination, but like all business owners, eventually they run into a growth stumbling block. Do you know how to grow your business even when others can’t? Here are five things that every entrepreneur should know about growing a business.
It’s not the cheapest or the easiest road to travel, but many small businesses choose location expansion as their vehicle for business growth. The general thinking is that more locations could introduce your products and services to a wider customer base. However, expansion could deliver the opposite–too much overhead without the expected bump in sales. If you’re looking for tips on how to grow your business, consider the benefits and potential pitfalls of opening in a new location.
How much misinformation surrounds learning how to grow your business? With these five common myths, apparently there’s plenty. There’s no arguing that a small business is like a living thing–it needs a few things to grow. However, many small business owners aren’t sure what the magic formula for high growth is or how to apply those factors to their specific companies.
One risk that many small business owners don’t spend enough time considering is business interruption. Would your business be able to handle an interruption and still survive?
There are many types of interruptions that can occur in a business. Today, we will review what I consider to be the three primary types of interruptions to your business that you can prepare for. If you’re ready for all of them, then you can run your business with more confidence; knowing that an interruption will not force your business to shut down permanently.
If you are thinking about starting a small business or looking for some inspiration to be a better small business owner, here are some suggestions that can help you to tap into your full potential and grow your business profitably.
Many small business owners are individuals who had a great idea and executed on it, but may have a little bit less experience when it comes to the financial side of a business. Obviously, not all business owners have accounting or finance backgrounds, but they still have to learn enough to handle their small business finances. Here are a few tips to help you keep your small business finances on track.
And why not?
The people who work hard to make sure that your company succeeds deserve to be compensated for their time and effort, but it can often be difficult determining how pay is going to be distributed among your workforce. This is because there are a lot of different factors that you have to keep in mind.
When determining how much an employee should be compensated, you need to keep in mind qualities like:
- Your location and what the average person in your area makes for the same kind of work
- The condition of the job market
- The employee’s background and experience
- The industry standard
Beyond that, figuring out how to pay employees also involves how frequently they get paid, the method through which they get paid and how things like benefits and company perks will affect that employee’s pay.
Let’s take look at many of the other factors that you have to determine when it comes to employee pay and, hopefully, you’ll be able to conclude what the best practices for your own company are.
Ways to Pay Your Employee
When it comes to how you pay the people who work for you, the most important thing to remember is that you have three basic methods for determining how they will receive their income:
- Commission – When an employee gets paid on commission, he or she receives pay based on what has been sold. A percentage of the goods that the employee sells will be given to them as their compensation, so if you want to determine how to pay employees so that they stay motivated and you keep key talent then commissioned pay might be right for you.
While this structure has advantages like unlimited earnings potential and some degree of freedom, you have to be aware of the fact that this pay structure can also lead your salespeople neglecting good customer service in favor of chasing the biggest possible sale.
A salesman who only receives commission may not take the customer’s needs into consideration, or they may choose which customers they aid based on who they think will lead to the biggest payday.
- Hourly Wages – This is by far the most common method of payment in our society. With this structure, the employee is paid a regular rate that gets multiplied by the hours that they work over a pay period. If you’re looking for a method on how to pay employees that will produce work when you need it and keep you from paying an employee when business is slow, then this is the kind structure that you should use. You may also get employees who are willing to work at times when others aren’t, like holidays, because they may need the money.
Some Disadvantages to Consider
As a business owner, one disadvantage you face with hourly employees is that labor laws state that you have to pay overtime (the employee’s hourly rate plus half) for every hour over forty that they work. If you don’t limit how often those employees work, payroll can start to encroach on your margins.
- Salary – Through this form of payment, the employee receives a set amount of money per year, distributed in the same amount every pay period. Salaried employees typically don’t receive things like overtime, but the tradeoff is that they have a bit more flexibility about when they work.
One disadvantage that you face as an employer is, if this is how you pay employees, your ability to offer compensation as a reward for additional work is limited because of the employee’s fixed income. Salaried pay may also offer little in the way of appreciation shown for the extra work that an employee does. This could potentially affect morale.
Which of these structures you use to compensate your employers can have a lot to do with what kind of business you run and the size of that business, among other things, but the structure of the pay isn’t the only consideration that you need to take into account when figuring out how to pay employees.
Besides the structure, you also have to consider the method of delivery (traditional paper check or direct deposit) as well as the perks that you can afford to offer.
In addition to adequate pay, many employees and job seekers also look for benefits to make their lives easier.
Some benefits that many people typically look for in employment can consist of:
- Insurance like health, dental, and vision
- Adequate vacation time
- Employer sponsored retirement plans where contributions are matched by the company
- Flextime to work at least some hours at their convenience provided the quality of their work doesn’t suffer.
Remember, when thinking about how to pay employees, it usually goes beyond what you offer in the form of a paycheck.
Your employees want to feel like they’re valued and their contributions matter in the larger scheme of things. Beyond that, you can retain loyalty by offering benefits that ensure security and promote a healthy work/life balance.
Show your employees that they matter and you’ll get quality work out of them in return.
Remember, running a business successfully does not need to be complicated. Keep it simple!
For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com. Follow us on Twitter @portalcfo
Sign up for our weekly blog email update to stay tuned for details on our upcoming teleseminar for maximizing profits in your business.
One topic that is all over the news these days is state employee benefits. I understand that compensation is a very challenging issue; with key constituents making powerful points on both sides of the argument. The point, as I understand it, seems to be: “what was agreed to” and “what can afford to be paid.” I tried to think about the issue in basic terms and came up with a similar example that I see time and time again in my CFO consulting practice. So, let’s look at the issue from a business owner’s perspective.
I asked one of my business owner clients how he arrived at the dollar amount of his monthly compensation package. He replied to me that $X is the amount of money that he needs to live on. Gently, I explained to him that based on his company’s current revenue and net income, his business could only afford to pay him $X MINUS $5,000 per month. You can imagine how my response was received by this hard-charging entrepreneur. I explained to him that he (and his business) was sitting on a ticking time bomb that was called “his pay.”
He had already weakened his company over the last year by taking more compensation out of his business than his business could afford to pay him. The problem showed up in the form of a lower-than-usual cash balance, a higher line of credit balance, and a constant scramble to collect accounts receivable in order to make payroll. In other words, the business was doing just fine (financially healthy and growing slowly), but it was beginning to struggle to pay its owner’s ever-increasing compensation demands. I figured that I better press the argument before the company reached the point of no return; aka “ceasing to exist in the business world.”
I explained to the business owner that the growth in his compensation package had outpaced the growth in his business and therefore he was slowly killing his business and therefore his livelihood. Any business, I explained, can only afford to pay its owner “so much”. You have to decide if you can live on whatever that “so much” is or consider other alternatives. You are a risk-taking entrepreneur. You have to decide if you can grow the business to the point that it can afford to pay you the compensation that you desire and refrain from taking your ideal compensation out of the business before that time arrives. If you believe that your business will never be able to provide the compensation that you desire, either deal with it or sell that business and go start another business that will provide you what you seek. No one can answer that question but the business owner.
My client wasn’t having any of it. He told me that he was accustomed to living a certain “lifestyle” and come hell or high water, he was going to live that lifestyle. I explained to him that he needed to reduce his pay or else he would go out of business. There was no other way around it. He is choosing not to do it. He believes that he will grow his business quickly and eliminate the current stress. Ah, the charmed life of an entrepreneur!
The same example applies to the current state benefits debate. The states built the benefits packages, attracted the employees with it, and now revenue has fallen short and the states can’t afford to pay the benefits packages they previously negotiated. The current path is simply unsustainable. State employees refuse to have their benefits reduced and I fully understand their argument and actually agree with them. However, if a reduction is not made to the benefits in order to bring them in line with revenue, the state will be forced to restructure in some way; maybe even lay-offs. What would you do if you were faced with this crisis? It’s not an easy question to answer.
Remember, running a business successfully does not need to be complicated. Keep it simple!