This is the final newsletter in the series on the importance of good management of staff and human resources, so I’m sending it out sooner than I normally would.  It’s also one of the most important – especially now, as so many firms, government departments and parastatals are coming under renewed pressure from Trade Unions and employee representative associations to increase wages.

 The reasons for this are perfectly understandable – wages for general workers are simply not enough to meet the high cost of living today. South Africa’s history of job discrimination, and the whole apartheid system, has also meant that wages have been coming off a very low base.  Trade Unions are looking for increases way beyond the official inflation rate, and generally speaking, business owners and economists are saying that’s unreasonable.  And on the one hand I agree with them – after all, how does business absorb such monumental increases in labour cost without passing it on to the consumer (which will affect the inflation rate again!)?  On the other hand, a 20% annual increment in a wage that’s already historically too low for anyone to live off, is hardly asking too much, is it?

So, – somewhere between the two, both employee representatives and business – and as a result, the average man-in-the-street, – are going to have to come to some sort of compromise on this matter.  Yes, the average general worker needs more money to live on – just to make the basic ends meet!  And yes, the business owner simply cannot absorb such increases and still remain competitive in a global market.  Well, I have some suggestions to consider…

PAY WHAT THE JOB’S WORTH!

This is a really touchy subject – for both employers and employees – and there’s good reason!  In many cases, unscrupulous employers pay desperate employees way below their worth.  Also in many cases, employees with very little ambition and almost as much interest, continue to demand annual increase after annual increase, for doing the same job, year after painful year.  I believe that this status quo really has to stop, especially if businesses want to grow, and want their employees to grow with them.

WHAT ABOUT THOSE EMPLOYERS?

A great majority of employers pay their staff according to what the market dictates.  They will phone a personnel consulting firm in their local city, and establish a bench mark for a certain job profile, and then look around for someone who is willing to work for that salary each month.  This is weird because the market in Johannesburg is different to that in Durban, and that in Cape Town.  Yet the job function may be exactly the same in each of those three cities.  What I’m usually told is that the cost of living in Johannesburg is so much higher than Durban, and that’s why the salaries are higher.  Or, – I’m told that there’s a greater demand in Johannesburg; that it’s simple economics – the law of supply and demand.  And the best one yet, – people will accept less to work in Cape Town because it’s a nicer place to live.  Now, all those things may be true, but that doesn’t mean the job is any different; and this applies particularly to those large national companies with branches all over the place.

On a very simple level, let me relate a personal experience.  I remember an incident many years ago when a neighbour offered to share the services of his gardener with me.  When he told me this he added, “Please don’t pay him more than Rx per day, otherwise it will affect everyone he works for.” At first I complied because I really didn’t know how this gardener would turn out.  Later on, however, I determined to pay him much more, – and for one simple reason – he was worth it!  And by that, I don’t mean that he was a better gardener than I expected, I mean he was worth it to me!

I calculated what it would cost me to mow my own lawn in terms of time and effort and it was significantly greater than what I was paying the gardener.  After all, it would use up my own valuable weekend time (which I have to say nowadays I guard very selfishly and very carefully), and it would also create the additional stress of being aware, each day through the week, that the job needs doing. 

In addition, by using his services it was freeing up my time to generate income at a far greater rate than his actual cost.  I had determined that he was part of my income-generating team, and on that basis alone, I was going to look after him!

The old adage of “fair pay for fair work” comes to mind. There are also two biblical reprimands to be considered in this regard:

“How terrible it will be for one who builds his palace by doing evil, who cheats people so he can build its upper rooms.  He makes his own people work for nothing and does not pay them. (Jeremiah 22:13),

And

“The pay you did not give the workers who mowed your fields cries out against you, and the cries of the workers have been heard by the Lord Almighty.” (James 5:4)

If you’re not a Christian, you may say, “What’s that got to do with me?”  Well, I happen to believe that regardless of what your belief system is, there is a universal principle inherent in those warnings.  I believe this because I have seen the results of this kind of blatant exploitation, and it goes under the heading of “you will reap what you sow”.  I have often come across someone who pays his workers poorly, and then wonders why he struggles to collect debt due to him; or wonders why every job he does is problematic; or why his vehicle breaks down just when he needs it.  Call it poetic justice if you like….!!

Employees need to know that they are valued, and (sadly) there is no better way to demonstrate this than through the pay-packet.

WHAT ABOUT THOSE EMPLOYEES?

I recently heard someone say that he values the loyalty of his employees over everything else.  The question I felt I should ask is this: “how do you know that employee is loyal?”  Is it because he has worked for you for ten years and never missed a day on the job?  Is it because he wears the company T-Shirt?  Or, is it simply because he doesn’t know much else, and every month he gets his salary paid into his account, and every year he gets an annual bonus and an increase?  Now don’t get me wrong – I’m not suggesting it’s either one or the other; an employee could really be loyal and also happy to be regularly paid, but I’m also not naïve enough to think that an employee will stay on if he’s offered a better job with higher pay somewhere else. (Generally speaking, of course!)

So, someone could start working for you today as a general worker and be earning R5000 per month.  In ten years time, with an average annual increment of some 10% (about 4% above the current official inflation rate), this person will be earning nearly R13000 per month – still as a general worker, and because he is now ten years older, is probably doing less work than he was doing before.  In fact, when one looks at this example, over the ten year period, one can see that this particular worker would have cost his employer R213,000 extra for doing the same job.

This is simply untenable, especially now that we are part of the global economy, and in the global economy, wages are paid for the job, and not for the period of service of the employee.     

But, how do we overcome this problem?  In my father’s generation, it wasn’t unheard of for employees to work for a business for anything up to fifty years.  A worker would leave school at the age of 16 and have one job until he retired at 65.  This is almost unheard of today (though I do know of one at Rawdon’s Hotel in Nottingham Road, who’s been there for over 50 years!).  Nowadays, I believe the average period of service for many employees, in the global western economy, is about eighteen months!  There are two reasons – workers know that to advance in their careers, they need to be constantly improving in what they do, and who they do it for; and secondly, – employers don’t want them hanging around doing the same old job for too long.  It sounds terribly mercenary, but it’s a reality!

I do believe that all future employment contracts should clearly state that the remuneration offered to an employee is tailored to the job profile, and that it will only be subject to annual increments at the CPIX incremental rate. (there are obviously other issues to consider, though I won’t go into those now.)

The onus is therefore on the employee to improve him/herself, if they want to earn more income.  However, I would also encourage employers to identify those employees that show promise and a desire to improve – don’t leave potential star performers to find their own way; get alongside them and push them to greater hieghts – it can only benefit your business at the same time.

 Give them a vision, and then keep them envisioned!

There’s a Proverb which states that “without vision the people perish.”  Another way of putting it is that without vision, without goals, people cast off restraint; they become de-motivated, unfocused and haphazard in everything they do.  

 There is nothing more de-motivating for employees than not knowing where your business is going or what part they have to play in it.

Why is vision so important? And if it really is, how do we go about clarifying what the vision for our own organisation is?  Thomas Watson, the former CEO of the IBM Corporation said this:

 “Consider any great organisation– one that has lasted over the years – and I think you will find that it owes its resiliency to the power of what we call beliefs, and the appeal these beliefs have for people… The basic philosophy, spirit and drive of an organisation have far more to do with its achievements than resources, structure, innovation and timing.”

 In their excellent book entitled “Beyond Entrepreneurship” by James Collins and William Lazier, they spell out the four primary benefits of a corporate vision:

• It forms the basis of extraordinary human effort. – Its our nature to respond to values, ideals, dreams and challenges, and we want to work at something we can believe in, and that has meaning. It’s called motive!
• It provides a context for strategic and tactical decisions. – Its so that people at all levels can make decisions and can share in them.
• Shared vision creates cohesion, teamwork, and community.  Give a group of people a compass and a destination point; turn them loose in the mountains and they’ll probably find their way. Organisations without a shared aim have no context and their people wander aimlessly in the side canyons and take detours to nowhere.  Without shared vision, any organisation can easily degenerate into factions.
• It lays the groundwork for the organisation to evolve past dependence on a few key individuals. To begin with, vision comes directly from the organisation’s early leaders. Afterwards, it must become shared as a community and become identified primarily with the organisation rather than with certain individuals running it.

 Vision Framework

 There are many different ways of approaching the concepts of “vision”, and I’ve heard people debate the definition of “vision” over that of “mission”.  Quite frankly, I don’t think it really matters as long as you, as the leader, are clear about where your organisation is going. 

And by that, I mean “a dream”, a “view”, and a “picture” of what it could possibly become at some stage in the future.  Stephen Covey refers to the concept as “beginning with the end in mind”.

Engaging your employees in your strategic objective

The intangible, but highly influential, experiences of free expression, self-sufficiency, and creative control are what drive many people to want to contribute something within business.  This generally just as true for employees as it is for the business owners themselves.

Obviously, as the business owner, you have a unique stake in the success or failure of your business because it is tied to you as an individual. As such, you are willing to struggle through the tough times while maintaining your excitement – hopefully – as you create a vision for the future.

Creating this future vision is vital.  And its not just to have something to pin up on your wall somewhere – its got to be “the end in mind” – as you clearly see it.  Setting your heart and mind to this objective is an entrepreneurial exercise that forces you to describe with conviction what your business is all about. You, as the leader, must be clear about where you want the business to go, and what it will look and feel like when your vision is realized. Why is this concept so important? Because you are not on this journey alone. Your employees will also require this level of clarity if they are to commit to going there with you.

Your People Strategy

After developing a strategic objective for your business, you are then faced with the task of taking it to the next level.

This includes communicating your vision to, and getting buy-in from, all of your employees.

The challenge? As employees, they will not have the same relationship to the business as you do, and will therefore naturally lack the inherent personal connection that drives you.

So how do you motivate them to take a personal interest in, and ownership of, the goals and objectives presented in your strategic objective? The answer is twofold:

• you must really try to understand their needs, and then
• position the opportunities within your business such that it touches them on a personal level.

 What Employees Want

 Any business has the potential to be a source of personal satisfaction for the people that meet and work there. And your business is not exempt from this important aspect, no matter how it functions, or the training it provides.

Take a step back and think about it from an employees’ perspective – would you want to work for your business? Wouldn’t you want to know such things as whether:

• personal and intellectual growth opportunities were available; whether
• other employees were proud to be there; and
• how the business is known and understood by its peers, the city its in, or for the services it provides in that community?

Think back on your own work experiences: How did you feel when you worked for a business that you truly believed in? And what was it like to work in a business that simply expected it of you as your bounden duty? Believe it or not – the bottom line for most employees is not just about being there, it’s also about personal fulfillment and growth.

Fulfilling Needs, Reaching Goals

In order to engage your employees in your Strategic Objective, you must concentrate on their needs and find something about the business that will provide personal satisfaction for them.

Maybe it will be in the various systems that you have created, or your unique business culture, or the exciting projects they are assigned based on their particular skill sets. Take the opportunity to find out more about them as individuals, and what drives them, what turns them off. Then review your Strategic Objective and make sure you have created opportunities that will attract the right people.

Remember, the business must not only serve you. In order for it to be truly amazing, it also must serve those who work in it. Engaging employees in your Strategic Objective should be seen as an important, strategic, and necessary task to successfully reach your goals.

Tom Chappell, founder of Tom’s of Maine, a highly profitable company in the USA, explained this: 

“Quantitative goals can’t invest purpose in a process that has none.  The quest simply for more of anything is inherently unsatisfying.  If there is no point of joy in what you are doing, or if you lose sight of the point, then just measuring your progress can’t make it worthwhile or fun.  If I can organize people around purpose, that is the most powerful form of leadership.”

Having a purpose that is greater than yourself will give you a constant impteus to strive.  Purpose gives life meaning and helps us to direct and focus our talents and efforts.  It also attracts the talents and energies of others whose purposes align with our own.

" Only 3% of all people have goals and plans and write them down.  10% more have goals and plans, but keep them in their heads.  The rest ‑ 87% ‑ drift through life without definite goals and plans.  They do not know where they are going and others dictate to them." (Glenn Bland)

If we examine these statistics further we find that the 3% group accomplish 50 to 100 times more during their life than the 10% group.

Its been established that the reasons most people don’t set goals and establish plans are:

• They don’t know how;
•  Its too much trouble.
• They don’t have faith in their goals and plans after they are developed.
•  They begin on a long‑range basis and this prevents them from seeing immediate results, so they become discouraged.

Most of the businesses that I have worked in and with, and most of the individuals that I have had opportunity to help, over the last 35 years, have lived their lives drifting between the 10% and the 87% groups.  Goals and plans are rarely allocated the time they justly deserve. 

Goals and plans can become a reality.  There is even biblical precedent for this:

"Write down the vision; write it clearly on clay tablets so whoever reads it can run to tell others.  It is not yet time for the message to come true but that time is coming soon; the message will come true.  It may seem like a long time but be patient and wait for it, because it will surely come; it will not be delayed." (Habakkuk 2:2‑3) (emphasis mine!).

Once you are clear on the vision you have for your business, you need to share it with your employees.  And then write that vision down, clearly, so that everyone you relate with, and to, will know what you’re aiming at, and generally will support you in achieving it.  In this way, the statement of clear intent exercises a subliminal influence on all who work there.

What is more, your employees will be given the opportunity to buy in to your vision for your business and they should then be encouraged to create their own set of goals and plans within that overall vision.

Then keep them updated and informed! Keep encouraging them as you see them grow.  Remember, – they’re part of the team and the team can only win if they’re playing on the same field! 

In surveys carried out on the worlds top companies, it was discovered that almost without exception, CEO’s spent more time on envisioning their employees than anything else.

Whether you like it or not, your employees watch you; they’ll even start adopting your little quirks – sometimes even using the words (and epithets) you use.  If you’re living your vision, they’ll soon be doing the same.

Stuart Holliday has joined the team as a business coach. He has worked for a number of privately owned companies over the past 30 years, and has been involved in manufacturing, costing, marketing, selling and general management. Stuart has a particular ability to create structure where there is none (and where it is needed), and to re-engineer structure and systems where appropriate. He is a great encourager, and loves challenging people to be the best they can be. Stuart’s going to particularly effective in our new Business Buddies and Business Nursery divisions of the business, and is looking forward to connecting with many of his business associates in this new venture.  We thrilled to have him on board and wish him everything of the best in his endeavours.

 THE 10 COMMANDMENTS FOR A THRIVING WORK ENVIRONMENT

 In an article by Jill Hamlyn (MD of The People Business), published in Business Day some years ago, she said this:

“MISERABLE employees are a danger to your business. Making them happy helps to equip your enterprise for almost anything that the market throws at it.”

 She goes on to recommend that all business owners, managers, follow what she calls her “10 Commandments” for establishing an environment in which people thrive.  They’re relevant to this series, so I’m taking the liberty of highlighting them:

• Thou shalt not lie

Do not lie to your employees, clients or customers, or expect your employees to collude in lies. Professionalism demands that company and employee present a united front, and professional employees will strive to keep a neutral face when confronted by clients promised one thing but delivered another. When one lie follows another, though, honest employees get uncomfortable and sooner or later, the truth will come out. If you have a culture of lying in your business, you will need to keep checking your back for knives: it stands to reason that your employees and clients may be as dishonest as you are, but with a different agenda.

It is vital to create an atmosphere of trust within the organisation, particularly when times are tough.  Inevitably, when businesses are distressed, owners tend to become very secretive and non-communicative at the best of times.  This creates wrong impressions in the minds of employees and eventually it leads to an “us and them” attitude.  Lying to your employees will only make matters even worse.  I personally believe that transparency and honesty pays huge dividends when the chips are down, and you don’t have to waste valuable time trying to paper over the cracks.

• Thou shalt not be greedy

Greediness is disparaged, and greedy people are even more so. Money-making at the expense of good service and good people is a one-way ticket to failure. Greed is closely related to exploitation, and few people with alternatives will stand for it.

When a company is struggling financially, and people are being laid off, small business owners have got to set an example by cutting their own drawings “to the bone”, before any other expense.  Many small business owners haven’t yet graduated from the employee mentality.  They still expect a monthly salary like everyone else.  The last thing you should be doing is continuing to live a profilgate lifestyle when everyone around you knows the business can’t afford it; and they’re more than likely subsidising it.

• Know thy staff

In a company of 1 000 people, the CEO cannot be expected to know everyone. But as the MD of a company of 50, you have no excuse. You should know who they are, how they got there and the details of their contracts. Those who perceive that they are unknown and uncared for, will leave. A high staff turnover leads to an unstable company and a high client turnover.

In small to medium sized businesses there should be no excuse for not knowing your employees – where they live, whether they’re married or single; how many children they have; as well as their health and well-being.  You may disocover aspirations and latent talents in the process that can only benefit your business in the longer term.

• Thou shalt not upbraid openly

If an employee has done wrong and must be confronted, take the dressing down behind closed doors. Doing it in front of other employees or clients is embarrassing for the client, and breeds fear and resentment in all employees. Resentful, angry and fearful employees will quit, and the reputation it will earn you as an employer will be damaging.

The pressure faced by business-owners when their businesses are in distress is considerable.  It is almost understandable then, that there will be more ‘heated’ exchanges than normal.  However, breeding fear and resentment amongst your employees is the last thing you want when you need their commitment!  There can be nothing more humiliating than being dressed-down in front of your co-workers, and especially if you don’t deserve it!

•  Thou shalt not divide and rule

 This is closely related to the rule that you should refrain from gossiping about some employees to others. The damage it does to company morale is irreparable, and the damage it does to your authority is worse. And what are they saying about you? Divide-and-rule might have worked as a tactic in the past, but employees are wising up; the result might be a workforce united against you.

Whatever you do, don’t play this game.  In South Africa, where it is particularly difficult to just hire and fire at will because of legislation which protects the worker, don’t try and ‘engineer’ dismissals (constructive dismissal) and use a small issue as the proverbial straw that broke the camel’s back, to get rid of ‘problematic’ employees.  Be consistent; be fair, be transparent and be honest.

• Thou shalt invest in thy staff

 Staff who have been invested in show greater returns than those who have been neglected – they are keen to invest themselves in your business.

This became compulsory in light of the Skills Development Act.  Small business owners tend to avoid this aspect of personnel management because they think it’s going to cost too much, or that they can’t afford to have employees away from work, while they’re being trained.    Well, it needn’t be that way! What employees need is encouragement from you to develop themselves.  Guide them in what courses to take, what books to read, what motivational training aids to listen to – remember, it’s going to help your business in the long run.  A business cannot grow if its employees don’t!

•  Thou shalt take staff seriously

This means that you should not keep them waiting if they have an appointment with you. It means that you should pay them on time, and in full. Take their concerns seriously, and work with them to sort out potential problems. Do not stamp on the initiative of your employees, and respect those who you were wise enough to employ sufficiently to keep them employed.

 Don’t be dismissive of employees’ commitment!  If one of them comes up with an idea, don’t undervalue it with a statement like “it’s more than that..!”  It’s so much better saying, “those are valid comments and worth considering.”  You’re not saying you’re going to accept them, but the employee feels he/she’s been listened to and taken seriously.

• Thou shalt not underestimate the power of employee loyalty

Loyal employees do not leave. They do not have the desire to see your company fail because they like the company and what it stands for. They do not gossip about you to other employees or to clients, friends, enemies, or journalists. They will help prop the door of the cupboard closed as the skeleton inside tries to escape. Disloyal employees – inevitably disloyal as a result of the way they have been treated, or the way they have seen others treated – can wreak enormous damage to any company.

Encourage loyalty all the time – even in the face of severe trial.  If you’ve been consistent over the years of your relationship, you will be pleasantly surprised at the loyalty you engender.  Remember, – people don’t leave companies, they leave people!

• Thou shalt not kill good ideas

Sometimes the best ideas are brought to light by those at the coal face. Those at the bottom or the middle of the hierarchy are able to perceive things differently from those at the top, and can use their experience to put a company head and shoulders above the rest. Listen to them.

This is particularly relevant for businesses in distress.  Often, it’s the ideas from ‘the shop floor’ that can make the difference. Perceptions on the shop floor can be very different from that of management, and it’s very useful to gain some different perspectives.

• Thou shalt support thy staff

If you are on your employees’ side and they know this, they will be confident decision-makers who earn respect. If you do not assure your employees that you are behind them, they will not stick their necks out for you. “

We all know the old saying that the customer is always right!  Even though we know that the customer is not always right!  Well, there’s nothing worse than taking the side of a customer at the expense of an employee, when the customer is clearly wrong.  There is a way to handle a situation like this can be a win-win for everyone.  Listen to the customer and ensure he/she goes away feeling like they’ve been heard.  Do the same with the employee, and let the employee know that you agree with him.  Tell him what you have done with the customer and why.  Never, and I repeat, never tell the employee off in front of the customer, especially if the customer is in the wrong.  It’s wrong, it’s insincere and your employee will never be able to trust you again.

In my previous newsletter I made this closing statement:

Your employees are actually all you’ve got. If you’re not paying enough attention to them, it’s quite likely you’ll not have a business too much longer.

Before you do anything else, pause for a moment and just think about this, relative to your own business and the way you do things.  Then, I suggest you develop the following leadership habits:

RESPECT THEM AND LET THEM KNOW THEY MATTER!

Bosses with the greatest ability to get top-quality work from their employees operate according to one basic principle:

Most people will perform best if their supervisors assign projects in a way that makes them feel their contribution is important.

This advice may sound like I’m asking owners to start ‘mothering’ their employees, yet many bosses get so caught up in juggling daily crises they lose out on opportunities to put this fundamental knowledge to work.

Everyone wants to know that one’s life has meaning – has purpose.  Everyone has a desire for something greater than what they have accomplished to date.  That is why we adore super heroes, and follow pop-stars; always striving to be better looking, slimmer, faster, taller and brighter than the person we actually see ourselves to be.

I remember an incident many years ago, while working for a construction company, and being troubled by the desperately poor productivity of one particular labourer who had been given the task of digging a large hole, just outside my office.  He was just going through the motions, slowly swinging the pick and loosening the soil; then picking up his shovel and one-by-one emptying shovelfuls into a wheelbarrow until it was full.  He would then – slowly – climb out of the hole and – slowly, lift the wheelbarrow’s handles, and (guess what?) trudge slowly to a ever-growing pile of soil, and would tip the barrow’s contents out, before – slowly trudging back to his hole in the ground. 

After a while, I could no longer concentrate on my own work and made up my mind to go outside and give him a good old-fashioned kick in the butt!  Then, on my purposeful way, I thought to myself, “What if that was me doing that meaningless, tiring, mind-frying work out there?”  And then I realised the answer: I needed to give him some direction, some sense of purpose, so this is how the conversation went:

“What are you doing out here?” I asked.

“Digging a hole!” he replied, as if I was stupid or something!

“Why?” I asked, as if I was still stupid!

“I don’t know! I was just told to do it,” he whined. 

 So I told him to stop what he was doing for a minute and to listen to me.  I then told him,

“We are about to build a large factory building on this property.  The building will be constructed of steel, and the framework will consist of large steel uprights which will need to be anchored on a number of solid concrete foundations.  These foundations will be placed in large holes in the ground.  The first foundation is the most important because it creates the ‘cornerstone’ of the whole building.  You are digging the hole for this foundation.  If this one is not correct, then the building will never get off the ground.  Therefore, my dear friend, the success of this entire project rests on your shoulders (and strong arms and back). 

He looked at me for a few minutes until the import of what I’d said had sunk in.  His eyes visibly brightened, his sagging shoulders squared up, and I’ve never seen a hole dug faster and more carefully since. Well, that’s how I remember it anyway!

The point for him was – it’s not what we do but our attitude to it that matters.  The point for the employer is – people need purpose!  G.K. Chesterton once said, “All men matter. You matter. I matter. It’s the hardest thing in theology to believe.”

Don’t just throw work at your people.  Spend a little time telling them about what they’re doing, why they’re doing it, and how it’s going to contribute to the overall success of the business.  You’ll be surprised what a difference it will make.

MOTIVATING SUGGESTIONS:

 Andrea Nierenberg, head of “The Executive Coach” has these suggestions for motivating employees:

Time your approach. When you’re making a sales pitch, it only makes sense to pick a moment when the client is most receptive. Similarly, introduce employees to new projects when you know they’ll listen best, and they will be more likely to understand the project’s goals and fulfil your expectations.

At a 40-person media buying services company I advise in Chicago, one of the executives supervises two staffers with similar titles. One employee works best in the morning; the other perks up in the afternoon. Two months ago, the executive decided to factor this into the way she dished out assignments. She’d give the "night owl" any projects that would take up most of the afternoon and were due before the close of business, rather than hand them off to the "lark," whose energies were flagging by then. Consequently, she’s found more projects have been turned in on time and with fewer mistakes.

Understand how your employees think. Some of your best staff members may view the world in a way that’s completely different from the way you do. Perhaps they’re highly analytical and you’re creative—or vice versa. By presenting information to them in the way they process it best—and letting them express themselves—you should find they’re more motivated to give you what you need.

At one company where I do management training, one of the supervisors on staff was very analytical. He’d been very successful in bringing in new business by approaching clients with pitches that included charts and graphs to illustrate his points. He was frustrated because he wasn’t able to persuade one of his most talented salespeople to incorporate this approach into his pitches. I recommended my client accompany the salesperson on a sales call but remain silent and see how his subordinate handled the situation. Although the salesperson talked his way through the meeting without using charts and graphs, they got the sale and my client chose to relax his approach. Since then, the salesperson has increased his territory by 20 percent.

Take time to listen. Meet after major projects to find out what worked and what didn’t work for your employees. Listen carefully to their feedback. Not only will it help you find better ways to work in the future, it will give you valuable insights.

At a magazine where I’m doing sales training, a supervisor was upset with a salesperson for losing a piece of vital business. While the salesperson began to explain what went wrong, the manager, instead of listening intently, began to open his mail. Finally, the salesperson said, "It’s really hard for me to explain this to you because you’re not listening." Realizing his employee was correct the boss began asking questions. He soon discovered he hadn’t provided clear instructions. Together, they went back to the client and regained part of the business.”

No boss should tiptoe around employees’ every mood. But by taking time to understand how the individuals on your staff work—and what motivates them—you will be able to increase productivity.  This is particularly important in South Africa, where we are faced with huge disparities in culture, language and race – and all of which will impact on your relationship with your employees.

However….

I can’t finish off this newsletter without first commenting on the impact of the organised labour movement in South Africa – the Trade Unions – and the divisive nature of their activities.

First of all, let me say that I don’t believe there is anything wrong in employees having formal representation.  It’s so much more practical dealing with four or five representatives of an employee body, than it is trying to communicate with a hundred people.

The Trade Union movement in South Africa has historically been a political one – an active member in the struggle against apartheid.  At present, most trade unions are affiliated to one of the larger associations of unions, and the most effective one is COSATU.  This affiliate has aligned itself with two political parties – the ruling ANC and the South African Communist party – both of which grew out of the struggle.  Quite frankly, the alliance is much more important for the unions and for the SACP, for without it, they would have very little representation in the country.  The ANC, in my view, could well do without the idiocy of its smaller partners, but knows that it would rather have them close by where they could control them, than as opponents where they could gain the support of the poorer masses.

Like any political party, the Trade Unions owe their success to their membership, and at present they are on a drive to increase that membership.  The underlying aim is not so that they can better represent workers to corporate South Africa – the aim is to gain power, political power – and through it, to influence government.  This is not what trade unions were meant to be!  These aims are driving a wedge between employees and employers – especially in the small to medium sized business environment.  Employees are made promises that the unions cannot possibly keep, and encouraged not to dialogue with employers without union direction.   In some cases, they are even coerced to join these unions.  Employers are put under more and more pressure to raise wages, and improve working conditions, in most cases, beyond their capacity to do so.

The result – more and more businesses are either automating and laying off workers – or just calling it a day and closing down.  This is especially relevant in the manufacturing industry.

So – what’s the answer?  Well, I believe that employers must keep their heads and not react emotively to this development.  Furthermore, if you’re maintaining good employment practices, treating your employees well, respecting them and let them they matter, and seen to be consistent and fair, I believe, inevitably, the truth will out!  Employees are not stupid, and ultimately, they will get to know who really cares about them.

So what’s the best way to go about employing the right people for the job, and once you’ve employed them, how do you keep them?

The following statement, though a little harsh, is a generalization:

Small business owners in South Africa do not tend to treat their people well. 

Many employees are generally regarded as just labour for hire – much the same as hiring a piece of equipment.     The prevailing attitude toward them by many small business owners is this: do the job and I’ll pay you, and that’s the sum of our relationship! 

Over the last 25 years, the Gallup organization has interviewed over a million employees, asking them hundreds of different questions on every conceivable aspect of the workplace.  Their aim was to sift out those few questions that were truly measuring the core of a strong workplace. 

They discovered that it can be simplified to twelve questions; “questions that measure the core elements needed to attract, focus and keep the most talented employees.” 

(These questions all form part of a number of books written by various members of the Gallup Organisation, such as “First, break all the rules”; “Now, Discover your strengths”; and a host of others.)

We have adapted these questions, made them into statements, and then we ask employees to either agree or disagree with the statements, as they experience it, in the workplace. 

As a small business owner, set this up in your own workplace, and hand out the statements to your staff, asking them to write down their views on a piece of paper.  In fact, take the series of questions below, and set them up on a spreadsheet.  (You can use it again and again, and thereby monitor the engagement of your employees.) 

You can then analyse the findings to ascertain just how engaged (or disengaged) they are.

This is very important. 

If you don’t measure up you will probably find that you have been unable to keep any superstars on your payroll or that you employ mediocre people who only care about their monthly pay checks. 

The statements are:

1. I know what is expected of me at work.
2. I have the materials and equipment I need to do my work right.
3. I do have the opportunity at work to do what I do best every day.
4. In the last seven days, I have received recognition or praise for good work.
5.  My supervisor, or someone at work, does seem to care about me as a person.
6. Someone at work encourages my development.
7. My opinions at work do seem to count.
8. The mission/purpose of my company does make me feel like my work is important.
9. My co-workers are committed to doing quality work.
10.  I have a best friend at work.
11. In the last six months, I have talked with someone about my progress.
12.  This last year, I have had opportunities at work to learn and grow.

“Much of the power of this measuring stick, then, lies in the wording of the questions.  The issues themselves aren’t a big surprise.  You may also be wondering why there are no questions dealing with pay, benefits or structure.  This doesn’t mean that they are unimportant.  It simply means that they are equally important to every employee – good, bad and mediocre.” (With thanks to Marcus Buckingham and Curt Coffman, co-authors of the book, First, Break all the Rules.)

 The authors go on to say:

“The results of such a questionnaire will determine whether your employees are either:

1.         Engaged – those employees who pack the biggest punch on all the important business outcomes such as productivity, customer retention, low turnover, safety, profitability, and growth.  They are involved in generating ALL of an organisations profits and customer engagement.  They represent the positive economic force that fuels an organisations profitable growth.

2.         Not engaged – those employees who may share the values and mission of their team and organisation but lack precision in terms of the expectations of their role. Many of them are just waiting for an opportunity to become fully engaged.

3.         Actively disengaged – This group accounts for most of the waste in terms of lost workdays, incredibly high safety costs, higher levels of staff turnover, low productivity and customer defection. They represent a negative economic force actively at work within organisations and to a large extent, undo the great work of the engaged employees. They stagnate the growth of a company and represent the most significant challenge to its profitability.  They are living and breathing obstacles to meeting customer requirements.  These people are real trouble!

The Gallup Organisation conducted a national benchmark of the engagement index in 2001, for eight countries. 

The results were sobering to say the least.  On average, 17% of employees were considered to be “engaged”, 65% were “not engaged”, and a scary 18% were “actively disengaged.” 

What this means is that over 80% of employees are just going through the motions, when they come to work – not much ambition, not much interest! 

Now I guess one could say that there’s more to business than the attitude of one’s employees.  However, the Gallup organisation has found that there is a direct correlation between the level of engagement of employees, and the level of engagement of customers. (and we’ll address this a bit later on.)

Clearly, if your employees are all scoring between 1 and 3 on each statement, you have a problem.  Consistent scores of 4 and 5 indicate a high level of engagement.

I have found that in many small businesses, employees are often not clear on what their duties entail, and that:

• very often, they do not have the wherewithal to do the job well;
• they get drawn into areas where they lack skill and therefore lose motivation;
• praise is the absence of criticism;
•  they have no idea that the business even had a mission in life other than making money;
• no one really cares about excellence or about personal growth and development. 

In fact, I have found that in most cases where businesses are struggling, it’s usually because of a people problem.  The problem does not lie with the people themselves – it’s a management/leadership problem.  People don’t leave businesses; people leave people!

 “Leaders create an environment where people come to work to prove themselves over again every day.  No one gets paid to budget their efforts or pace themselves.” (Dave Anderson)

Ultimately, it is the ratio of engaged workers to disengaged that drives the financial outcome of the organisation, particularly where active disengagement is concerned.  Your employees are actually all you’ve got.

If you’re not paying enough attention to them, it’s quite likely you’ll not have a business too much longer.

Personnel management is not usually very good in the small business environment. Without a doubt, this is one area that small business owners do not pay enough attention to.  

At the same time, I must emphasise that it is usually not by intent – it is usually by oversight, or even ignorance of the basics!

 THREE AREAS OF CONTENTION

There are three main areas of contention.

Firstly, many small-business owners in South Africa today, are very nervous about hiring anyone! 

 The Labour Relations Act in South Africa has to be one of the most liberal pieces of legislation around, and while it is certainly comprehensive, there is no doubt that it tends to favour the employee.  Now, I know that there are unscrupulous employers out there who manage to get away with ‘murder’ almost, when it comes to the way they treat their employees; but I also know that it is extremely difficult for employers – especially when they are small business-owners, with small budgets and even less time – to get rid of a troublesome employee. 

Almost without exception, any employee that has been dismissed – even for all the right reasons – still has the right to go to the CCMA (Commission for Conciliation, Mediation and Arbitration) and be heard – and will usually go there anyway.  This means that every employer will have to appear at the ‘hearing’ as well, all at great cost to them in terms of time and money.  The two words that made America great – “you’re fired!” – will never wash here!

Secondly, when it comes to hiring staff, small business owners tend either to employ people on trust and gut-feel, and not based on some sound selection criteria, or they tend to employ people based on what those people are prepared to be paid for the job.

Thirdly, small business owners tend to be guilty of not engaging their employees in the warp and woof of the business.  This has the effect of alienating employees – it makes them feel they’re not trusted and that they’re not appreciated.

HOW SHOULD YOU EMPLOY PEOPLE?

“The best time to fire people is before you hire them.” (Dave Anderson)

So, how should you go about employing people if you run a small business?

Personnel consultancies are expensive, charging as much as 20% of the annual salary of the employee, as a finder’s fee.  Even in the case where someone is being employed in a clerical post, the fee can seem enormous. (Placing a monthly salary-earner at a cost of R5,000 per month will attract a fee of anything between R7,000 and R12,000.)

 Most small businesses see that as far too much to pay and so they employ relatives, rely on referrals from friends of friends, gut-feel, etc.  At the end of the day, the cost to them can be far greater in terms of poor workmanship, poor productivity, poor attitude and ruined relationships.

 On the other hand, there are a number of Personnel Consultants out there who do not have the necessary expertise in every field of employment to fit the right person to every job.  They base their recommendations on the research they do, and a rather narrow band of selection criteria. 

If a person has built up a good referral base, consultants will be happy to recommend them – even if they may not ‘fit the bill’.  I have had occasion to use consultants a few times, and it has always irritated me when I receive a written report from them containing their opinion that “the applicant is ideally suited to the job”.

And this same opinion will be relevant to all four applicants they sent me, and which I now have to interview.  Well, which one really is ideally suited to the job? 

I have also been approached by Consultants for references on certain people who I have either worked for, or who have worked for me in the past.  I am appalled when the person asking me the questions is clearly just reading them off some standard questionnaire.  I wonder how they are able to get a true idea of what the prospective employee is really like, and in the right context?  I have had to comment on the work habits of some highly qualified people in fairly senior posts at times, and I’ve been conscious that the ‘interviewer’ representing the Personnel consulting firm, probably only has about five years work experience, and I doubt would be able to provide an objective opinion on the ability of the applicant.

We have managed to assist clients in quite successfully in the past, but only in the area of our own expertise – which is accounting and administration.  We follow a simple research process, and then rely on our own experience working in similar environments:

• We design the JOB DESCRIPTION (profile) in accordance with the client needs.
• We preview the applicants’ CV’s ourselves and create a short list.
• We get the client to do the same, and then we compare short lists.
• We get the short-listed applicants to complete a StrengthsFinder Profile test on the internet.  This can be accessed at http://www.strengthsfinder.com/113647/Homepage.aspx
• We match the Job profile with the applicant’s strength profile to get the best fit.
• We interview the applicants who match the profile the best, along with the client.

 Personnel consultants may be horrified at this – we may even be stepping on their turf – but so far it has worked pretty well. And, we don’t get involved in employing people outside our own field of expertise!

 Small business owners don’t have time to mess around trying people out only to find they don’t fit.  They also need to know that the new employee has the initiative and can innovate if need be.

I would suggest you adopt the following basic principle: – get a specialist in a certain field to hire someone for you to perform a special job in that field. The specialist should have a sound knowledge of how small businesses work, and the environment they work in, as well as knowledge of what will be required to get the job done.

EMPLOY THE VERY BEST PEOPLE YOU CAN!

John Maxwell, in a teaching series on Excellence in the workplace, recommends that entrepreneurs should make an attempt to employ the very best people they can in every position in the business.  In fact, he goes one step further – he recommends that we should employ top people, even if we do not have a job for them immediately. 

The best people, – the top people, – are net value creators.  In other words, they have the ability to create value greater than their cost to an organisation, – value that was not necessarily there in the first place. It won’t be long before they’re actually generating income which will not only cover their cost but increase the profits in the business as well.

 Dave Anderson, in his book, “Up Your Business” says

 “People are not your greatest asset; the right people are.  The wrong people are your greatest catastrophe. Mediocre people are your greatest drain on resources.”

In the next newsletter, I’ll cover the issue of how to retain those good employees.

 It’s been a few weeks since my last newsletter in this management series.  April has been a strange month with all the public holidays – especially here in South Africa.  The worst part of it is having these holidays in the middle of a week, as it really disrupts productivity.  Most of my staff decided to take a day’s leave on Monday the 26^th, given that the 27^th was the official public holiday, so I closed the office for that day.  It would be nice if sanity could prevail here and the politicians were driven by expedience and not emotion!

This newsletter is the next in the series on “what we have to manage” if we want to avoid constant stress in our business lives.

BE PREPARED

Preparing for “war”.

There’s an old saying that goes, “if you want peace prepare for war.” (Sun Tzu). 

If we apply this in the business sense, we will see that it’s necessary to adopt a conservative approach to all our forecasts and planning as this will help create a bit of a cushion for the shocks which are bound to occur.  In many ways, one could say that it’s worthwhile planning for the worst, while expecting the best! It will also enable us to consider monthly provisions for those annual infrequent expenses, which crop up from time to time.

Have a War-Chest

In this regard, I also encourage business-owners to establish what I call a ‘war-chest’. 

This is quite simply a reserve of cash for those ‘rainy days’ – for those tough times that are sometimes beyond your control, which can occur every now and then.  As a guide, I believe this war chest should ideally consist of cash reserves equal to at least three months total overheads.  This may sound like a lot, but if you start small, it won’t be long before you have built up the necessary amount and this provides one with a great deal of comfort during those tough times.

Early Warning Signals

Sometimes small business owners have very little time to pour over copious screeds of financial reports, with row upon row of numbers, many of which might not mean much.  All they need really are a few key numbers – performance indicators – that will enable them to glance up, make a simple adjustment, and then carry on.  It’s rather like driving your car.  Every now and then, you cast a glance at the dashboard to check your speed, your temperature gauge, and to see that there are no flashing warning lights, and then you carry on. 

In business, it’s much the same.  Unlike a motor car, though, your business doesn’t come with a built-in dashboard – you have to create one.   This could be a simply one-page report which contains a half-dozen-or-so key ratios and trends, which are available each month from most accounting systems.  These dashboards can be purchased as ready-made software, or they can be easily created for you from your own system – customising them as it were.   The ready-made software is quite expensive and probably more intricate than most small businesses need, but it’s relatively simple to get your accountant to design one for you, within your existing system. Or, if you like, contact us and we’ll be glad to help.

Every system of internal control should provide a battery of early warning signals to management. 

They should happen automatically and not only when the business owner requests them. These signals should alert even the most non-financially-oriented business owner if all is not well!

The way to do this is to develop the dashboard based on accumulating data, which will provide the business owner with trends in certain areas of the business. Once-off indicators can be misleading, so we always advocate trends over time in this regard.  The best kind of dashboard, and one which grabs the attention of most people (and especially the busy ones) is made up of graphs and charts.

Using Graphs:

The best way to view this data for most people is by way of monthly accumulating graphs.  If you don’t really know your way around a spreadsheet, it is wise to get your accountant to set these up as standard charts for you so that they’re easily update-able.  (We can also set these up for you online if you want.)

Some of the more commonly used trend graphs may be:

• Debt collection period in days. –   This graph will plot the average number of days it takes for you to collect your money from your credit customers.   If the trend is upward, it could imply that the collection efficiency is dropping, or that you are allowing more credit than you should. (Or, that your sales are going down).  Either way, it will have a negative impact on your cash flow.  If the trend continues, it may prompt you to have a closer look at specific customer’s accounts, and this could prevent a major bad debt from occurring.
• Supplier’s payment period in days. – This graph plots the average number of days you take to pay your suppliers for goods and services bought on credit.  If this trend is upward it could show that cash flow is deteriorating, because you have to make your suppliers wait longer for their money, or that you are carrying too much stock relative to your production capacity.
• Stock holding period in days. – This graph plots the average number of day’s worth of stock you are carrying, at the average cost of the stock.  If this trend is upward is could imply poor stock management,  -that you are carrying too much stock ; or that you are carrying the wrong mix of stock; or, if you’re a manufacturer, that you’re taking too long to manufacture your goods for resale – all of which means more cash out of the game!
• Break even sales on fixed cost overheads. – If the BEP goes up on a trend basis, it could mean your overheads are increasing, or your gross margins are dropping, or it could be both!  There will be more on this very important subject in a future newsletter.
• Variable Cost % of Sales – Variable costs are those which are generally only incurred when you sell something – it’s a direct cost of sale.  This graph plots the efficiency of all direct variable costs in relation to sales.  Fluctuating trends here could imply all sorts of production-related problems and need to be closely monitored. (Amongst a host of others.)  One of the most important of these variable costs in a manufacturing environment, for example, is the consumption of raw material in goods sold.  Some manufacturers run their entire business on the basis of this one consumption figure!
• Budget versus Actuals for expenditure. – Budgets should be adhered to and not simply studied. Excesses should only be accepted if there is a very good reason for it.  And if the budget was only drawn up to keep your bank manager happy, then you’re really in trouble.  Budgets should be prepared as carefully and accurately as possible.  Any variances should be followed up.

 EMPLOYING THE RIGHT PEOPLE TO MAINTAIN THE RECORDS.

In this instance, I am referring to employing suitably qualified and experienced people to maintain the financial records of the business on a daily basis. 

Far too often, I come across someone in the accounts department of a business, who has some form of general office experience but is not a trained bookkeeper or accountant.  This has happened largely due to the fact that the owner of the business was trying to keep costs down and has the attitude that since bookkeeping seems such a simple task, why bother with someone too ‘high-powered.’ (And consequently expensive!)

This attitude has been exacerbated by the prevalence of easy-to-use accounting software, which allows just about anyone with an atom of intelligence to capture data, – and the plethora of basic “bookkeeping” courses available from a variety of “training” institutions – which give people permission to call themselves bookkeepers when they are not! 

We don’t need data capturers – we need people who can extract information from this data ocean and use it to make vital decisions. 

As resellers of the very popular Quickbooks accounting systems, we often come up against people who have purchased the software and think that it makes them accountants! Wrong! Don’t underestimate the importance of accurate reporting.  One of the most mistakes that business owners make is to go out and buy this kind of software (and you can buy this off the shelf at a number of the mass market stores), and then because it seems so simple, they have a go at setting it up themselves.  There’s no problem with that, provided, you as the business owner, understand something about accounting, and also have an idea of what you want to extract from the data that is going to be captured.  Like most things in life, if you do the basics – the foundations – well, then it’s likely the rest of the job will stand up to anything.  If a house is built on shaky foundations it will eventually fall.

This is very dangerous!  And – it can prove to be extremely costly in the longer term, when someone qualified has to be brought in to fix things up!

The difference in cost between employing an excellent person and a mediocre one will be more than made up by the value created by the former, and in a very short time. Remember, – the other side of the coin is this – if you pay peanuts, you’ll likely get monkeys!

When specific skills are required for specific non-frequent tasks, outsource them. Even if the cost is quite high, it will be far more effective than if you tried to do the job yourself – and it’s a one-off cost too!

Now, – even though I’ve said that its important to employ the right people (and I must emphasise this), the advent of new technology and the Internet means that outsourcing this kind of expertise has never been easier.  For example, we can help clients – anywhere in the English-speaking world – by logging into their computers using the internet, and checking the work done by a small business-owner’s employees. (if you want to know more about this, check it out on our website.  It’s relatively inexpensive and all you need at your end is an internet account and an ADSL broadband line.)

Whatever you do, make sure that the information is reliable, regular, up-to-date and accurate.

INSTALL SIMPLE BUT EFFICIENT SYSTEMS OF INTERNAL CONTROL.

Accountants are notoriously pedantic when it comes to installing systems of internal control.  Don’t get me wrong – the systems they install WILL work. The problem with them is that they’re often designed for Accountants and as a result they’re often not simple for the average small business owner. 

And quite often, they haven’t been sufficiently customised to the needs of the business.

In a small business environment, it won’t be long before people start taking short cuts to make their lives easier. (including the Boss!).

Systems of internal control should be designed to achieve two main purposes –

• to enable the flow of funds in and out of the business to be properly managed relative to the skills of the people using the system, – and
• to cater to the leadership style of the particular business owner.  Some leaders love detail, and others don’t!

I have come across administrative systems that are so complex they dictate to the enterprise what needs to be done.  Systems are there to manage what you tell them to, and not the other way around. 

The system should be able to accurately record all transactions and enable the handling of all queries in the quickest possible time.  The use of paper should be kept to a minimum.  Developments in modern technology make this eminently possible.

At FINSERV we specialise in setting up such systems – they’re relatively inexpensive, and they work!

USE A COMPUTER.

It is surprising how many small business owners still avoid the use of a computer to assist in the management of their businesses.  Many of them still see it as being a modern accounting machine, to be used only by accountants and bookkeepers.  They have no idea that for the sake of an hour or two in front of the computer each day, they will be able to keep on top of the daily performance of every aspect of their businesses.

In an article written by Michael Plumstead for SUCCEED magazine he said this:

“Identify which daily or monthly tasks are critical to your very survival and then start talking to everybody you can find about the right technology to cover those important areas of your business… Start small and grow slowly.  If the technology saves you time, saves you money and enables you personally to work more efficiently, then buy it and learn to use it.  Do not over-learn…Technology is a means to an end – to grow and manage your business. It must not be used to plug weaknesses in your personal skills. Use it thoughtfully to improve your strengths and either to save you money or to increase your income.” (emphasis – mine!)

Today’s computers are cheap, efficient and provide a host of management tools to free up enormous amounts of a busy entrepreneur’s time.  Apart from financial record keeping, they provide Daily Planners, electronic banking, access to the wealth of data available on the world wide web, calculators, data storage & sorting facilities and a host of other features.  Modern software has also eliminated the need to be able to type quickly as programmes exist which enable voice-activated data capture.  Letters can be typed by just talking to your computer.

Most importantly, they have enabled modern business owners to analyse the performance of their businesses in a matter of minutes – a task that forty years ago would have taken hours and even days by a highly qualified accountant.

In this high-tech information era in which we live, we need as much (meaningful) information as we can get, to stay ahead of the pack in our enterprises. The comment “I’m old-fashioned about computers!” won’t wash with me any more.  And if you really feel strongly about not using one, then at least employ someone who will!  Either way, you can’t afford to be without one!

 The second most important aspect of your business that you simply have to manage, is your overall trading performance – and by doing it regularly; daily if necessary!  Forty years ago, when business was more sedentary; and there was a great deal less competition; and we certainly didn’t have the plethora of products and services that abound today, – it was common for business owners to have sight of a set of financial reports once a year, – usually about nine months after the financial year end; and even then, it was largely to comply with income tax requirements.

Today, margins are constantly under pressure; new products, new fads and trends are coming on to the market at an ever-increasing rate, so if a business owner wants to keep his head above water, he simply has to keep his eye on the numbers.

Many business owners don’t do this and operate on the basis of “as long as I’ve got cash in the bank, I must be making a profit.”   While this is generally true, to a certain extent it disguises the fact that the business could be under-achieving and any negative trends may not be seen until it’s too late. 

Most small business-owners have some idea of what the break-even point for their respective businesses is – it’s a sort of gut-feel!  They operate on the basis that as long as they’re exceeding their ‘break-even’ they’re doing alright.  That’s a very negative way of trading and is likely to cost a great deal in the long term.  Even though business is all about the bottom-line, it’s not just about the bottom line!  Does this sound crazy? Well, we do have to make a profit if we want our businesses to stick around and grow, but monitoring your trading performance is not just about checking on the bottom line.  It’s more about what happens between your sales and the bottom line that matters – because there’re huge amounts of opportunity lurking in every expense account, every product, every customer, every supplier – and even in the productivity of your employees.  Do this well, and the bottom line will take care of itself – and will surprise you!

The fact is most small business owners could be doing very much better if they knew how to apply a few basic rules.

With margins so low and competition so fierce, we need to know TODAY, how well we did, YESTERDAY! And we need to have some sort of financial analysis of our performance that will help us to fine-tune that performance for TOMORROW.

 John Maxwell, the popular author of a number of self-help and leadership books, penned a law of teamwork – called the Law of the Scoreboard, which states: “the team can make adjustments when it knows where it stands.” (The 17 Indisputable Laws of Teamwork – emphasis – mine.)  He goes on to say that the Scoreboard is essential to understanding, to evaluating, to decision-making, to adjusting, and to winning.  Simply put, he says that “When you know what to do, then you can do what you know.”

These are important aspects to consider and I want to unpack them a little more:

• Understanding. There are thousands of small business owners out there who know very little about basic financial management.  They rely heavily on an in-house bookkeeper, or a firm of practising accountants for information, but inevitably, these folk tend to be reactive in nature,  and they tend to only respond to requests from the employer or client; very rarely to pro-actively offer advice when its needed.  This is also largely because they only have sight of the financial information a long time after the fact.  So, – if you’re one of those business owners, then you need to get out there and attend a course on financial management for non-financial managers.  (If there isn’t one readily available in your town, contact us and we’ll make a plan for you.)  Get to know the basics; so that you understand the elements of costing, the difference between mark-up and gross margin; labour productivity, among others.  You may know your product better than anyone, and you may make it better than anyone, but if you don’t understand the financial concepts that go into it, you will lose out.
• Evaluating.  Once you have an understanding of how the various cost components come together, you can very soon see which products are the most profitable; whether you should be making certain products at all; whether certain customers are worth selling to, and whether your overheads and drawings are in keeping with your income.
• Decision-making.  Now, I don’t know about you but if I don’t know what’s going on in any given situation, then I find it very hard to make decisions; and what’s worse – this just leads to stress.  In fact, indecision is the mother of stress!  And, if you don’t know what’s going on, and you do make a decision, it may well end up being the wrong decision – and simply because you did not have the correct information to enable you to call it right first time!
• Adjusting. Once again, if you’re monitoring your trading performance on a regular basis, and you understand the fundamentals that make the business tick, and you’re able to evaluate the results and come to a decision – you can make the adjustments you need to, quickly! I can’t tell you the number of clients I’ve worked with over the years who vacillate on the important decisions, and it ends up costing them money.  If you’re bleeding and you make the decision to stop the bleeding – guess what? It won’t happen unless you make the relevant adjustments – unless you implement; or execute – unless you do something!
• Winning.  Well, this goes almost without saying doesn’t it?  If you’re on top of your game in this regard – you understand the business dynamics; you’re able to evaluate the results, make quick decisions, and implement your action plans – you will win; you will succeed!

With this in mind, there are a couple of basic requirements that I believe are non-negotiable for small businesses, if up-to-date and accurate trading results are going to be available.  In the next newsletter, I’ll go into those in more detail.