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Successful business leaders have all the information they need to make good decisions…Do You?
Wednesday, July 27, 2016
“£8,000 is just too much. He’ll have to stay.”
A few months ago, a business owner mentioned to me that he was extremely unhappy with one of his small team. A relatively new hire, this employee had passed their six-month probation period, but floundered quite soon afterwards.
The business owner wanted him out, but according to HR, it was going to cost up to £8,000, including legal advice.
That was five months of his salary. Tempting as it was to cut him loose, financially it just didn’t make sense.
Or did it?
This business owner was making a common mistake, believing that “costs” mean “extra expenses” – that is, spend that you hadn’t initially accounted for.
But in fact, spending your money on the wrong things is a cost. Someone doing the wrong thing on behalf of your company is a cost.
Keeping on an employee who – for whatever reason – is wrong for the job is a cost.
Take this junior employee. The company was aware that they were spending money on overtime payments to other employees as a direct result of his under-performance. But the hidden costs were even greater.
He’d been a dead weight carried by his team for over a year. It had demotivated them, and dragged down the efficiency of the whole department. The manager was investing a huge amount of time in keeping the employee on track, and it was putting her under strain.
The knock-on effect of a bad employee is huge, and that’s before you get onto the risk of them causing costly mistakes.
And because he wasn’t delivering the value the company was paying him for, the money they were spending on him in the first place was a complete waste.
I understand why the cost of getting rid of an employee can seem intimidating, but you need to weigh up the cost of firing them with all the costs of keeping them on. In my experience, getting rid of a bad apple pays for itself within a few months – even if you believe that the hidden costs are on the low side.
Ultimately, after long deliberation, this business owner did get rid of their under-performing employee. When I saw him recently, he told me he had no regrets.
“Not only has the atmosphere in the office changed for the better, everything’s getting done faster and with less mistakes. He was holding us back.
“It was worth every penny.”
Wednesday, July 20, 2016
Are Your Employee Benefits a Waste of Money?
“I don’t believe in Christmas bonuses.”
As you can imagine, that goes down like a lead balloon when I’m talking to people about coming to work for me. But in fact, I use it as a way to lighten the mood during interviews, because it’s not that I don’t like benefits – far from it.
It’s that I only like benefits which are both valued by employees and directly help the employer, because they motivate their staff or help grow the company.
In too many cases, I find that companies do not spend their money wisely, by offering benefits which answer neither of those criteria.
I’ll never forget a gentleman I used to know, who in the early 1980s had a company car. At the time, this was a benefit companies loved offering, because they were very tax efficient.
Well, this senior manager didn’t even have a driving licence, and it was his wife who used the company car. He came to work on the train each day…..
While that’s lovely for the family, it’s a waste of money for the company.
Similarly, many companies stock up on food and drink in their kitchens which never gets eaten. They think they’re offering a ‘benefit’, but if it’s not something employees really want, it’s not money well spent.
And then there’s those Christmas bonuses. I find that because they’re automatic and expected, employees tend to undervalue them, and they do nothing to motivate anyone to work any harder or increase their loyalty to the company.
So what benefits work best? I believe in performance-based rewards. Employees will work harder for your company if the result is tied to a financial bonus or additional leave. They will also appreciate the benefit more if they have earned it.
I do like Christmas parties (proving I’m no Scrooge!). The value staff place on fun, team-building events tends to be much higher than their actual cost (like a lot of benefits other than cash), and the morale boost is good for everyone involved.
It can be a case of weighing up what employees value versus what benefits the company. For example, private health care is good for companies because it gets a sick employee back to work quicker. But on the other side, it may not be hugely valued by employees because they may never take advantage of it, and never expect to.
One way to avoid that, and make sure benefits answer both of my criteria, is to have a benefit pool. People choose what they’d like from a menu, up to a certain value. Life insurance will appeal to some and gym membership to others. Because they’re things employees really want, it’s money well spent….
…So everyone wins.
Wednesday, July 13, 2016
Do You Really Need That New Employee
Things were going well for our client, which sold computer hardware. So well in fact, that they were having trouble keeping up with their rapidly growing sales.
Each time an order came in, a staff member would jot it down on a piece of paper, which was then placed on an in-tray to be processed later. If they went home early, or if the orders came in even thicker and faster than usual, the little pile of papers piled up on their desk.
The rest of the team regularly had to field enquiries from disgruntled customers, wondering why their order had never turned up – and sift through a mountain of handwritten scribbles, trying to decipher which order was which.
The business owner concluded that the staff member in charge of taking orders could not handle the extra volume, and became convinced that they needed to take on an additional pair of hands.
It’s the same conclusion many growing companies come to, when their workload increases.
But today I want to urge you to think carefully before you make that new hire. Can you really afford it? And is there a better solution?
Very often, companies under-estimate how much a new employee is really going to cost them.
Beyond the headline salary (together with National Insurance, pension obligations and payroll administration) you’ve got to add in all the recruitment costs – the advertising and agency fees, as well as the time invested by you and/or others in the company. Then you have to supply IT equipment, desk space, and no doubt a string of benefits, from free coffee to private healthcare.
There are hidden costs to absorbing that new worker, too. Every new employee needs to be inducted and trained. It’s estimated that it takes an average of 23 weeks before an employee gets up to full speed – and much longer for more complex roles.
And remember, you still have to pay this person when they’re not being productive – enjoying their holiday entitlement, at home sick, or wasting time at work (let’s face it, even people who own their own business waste some time at work – or at least I do).
Plus of course, you still have to pay them when you’re having a slack month. In fact, with no compulsory retirement age, I think of taking on a staff member as a lifetime commitment. What will that 30-year-old employee cost over time?
And let’s not start on the risks to your business if you hire the wrong person.
Now, this doesn’t mean that hiring is always the wrong decision – clearly that’s not the case! But before you start the search process, I suggest you examine whether your processes can be improved first.
When a business is growing fast, it is often wedded to ways of working which may have been adequate when it was smaller – but are completely inefficient when it expands.
Take the company I told you about earlier. They really didn’t need more hands – they needed to optimise the way they handled orders. Once we put into place Exchequer, the financial software I told you about last week, their worker simply had to key the orders directly into the system, so they got processed immediately, no details were lost, and the orders were filled much faster and more efficiently.
It was about the system, not the manpower.
Wednesday, July 06, 2016
It was six months after I’d first met these husband-and-wife business owners, who I started telling you about in my last email. Before we worked with them, they had been spending three full days every week trying to keep on top of their books. Despite running a £2 million business, their life was being consumed by their accounts.
Then we introduced them to Exchequer.
That’s the accounting software we use internally, and for all the companies we work with – because I believe it’s just that good.
In fact, to call it ‘accounting software’ is almost unfair.
Exchequer isn’t just for accounting tasks: it can also handle jobs like sales order processing, purchase ordering and stock control. That makes it useful across your business, not just for the people handling accounts.
Exchequer has extremely flexible reporting, so we use it to get a detailed understanding of our customers’ financial position – and any business owner can do the same. A new app, which we’ve just started using at Insight, makes getting information even easier.
Since knowing where you stand financially is key to making sensible decisions, this is crucial if you want to grow smoothly.
The best add-on feature, in my opinion, allows you to read data off purchase invoices, so you can simply scan them rather than having to key them in.
And there are other time-saving benefits as well. Exchequer integrates fully with Microsoft Excel and other popular systems, so you can import and export data easily – helping streamline your team’s work.
How does it compare to other systems? At the top of the range, you have SAP, Oracle and the like, which are great for very large corporates, but too big for SMEs. At the bottom, you have more basic systems like Xero and Sage 50.
While these are very popular and extremely good, they are really designed for micro-businesses. In my experience, once sales reach between £1 and £2 million, businesses start to outgrow them, and find they no longer answer their needs (much as I described in my email last week).
Exchequer is a mid-market product, perfect if you have big ambitions for your business.
The key to Exchequer is that it is able to grow with you. You can start with the core accounting software, together with the stock control module perhaps, and then add further modules as you grow in size and complexity – it can have up to 200 users.
I consider it a grown up accounting system for a grown up company. As your business grows, you need to professionalise the way you handle your finances. A robust system like Exchequer not only does that, it gives you all the capabilities the ‘big boys’ have – even if you’re not quite there yet.
I know I’m supposed to mention the negatives as well. But using it both for Insight and for our customers, I honestly can’t report any – except for the price, as it costs in the thousands.
However, there is a cheaper way to access Exchequer. Because we’ve invested in the infrastructure and support, we can make it available as a hosted solution from as little as £80 month. It’s a way to give smaller companies a power and flexibility in their finances which otherwise would only be available to much bigger organisations.