Archives for March 2019

Jim is a great tech. His work ethic and skill set is well above average, and he is really good at customer relations. He has been with the company for three years, shows up on time, and really seems to enjoy working at your company. Then, out of the clear blue, Jim gives his two-week notice.

What’s going on?

There are multiple reasons that techs leave a company, but one of the main reasons is their mindset of “Once a tech, always a tech.” Translated, the tech is thinking, “If I am going to be a tech the rest of my life, and someone offers me an additional $.50/hour, I might as well take it.” The bottom line is clear. The tech sees no “career path” with his or her current employer.

What’s the solution? Create an organizational chart for the next 3-5 years. Within the chart note the positions that will be created, and will need to be filled, as the years go by. Maybe two years from today the company will need a full-time dispatcher or service manager. Maybe an additional sales person or field supervisor will be needed in three years. When the chart is completed, share it with your technicians and ask the question “Are any of you interested the future positions that will need to be filled?” If the answer is yes, begin the training process for that position today. That will include both in-house training and perhaps some outside classes. When the position opens up, a well-trained individual will be ready to fill the position. It’s a win-win for everyone.

What just happened? You just created a career path for the technician. Now it’s highly unlikely the tech will leave for $.50/hour more, not when they have a career path laid out with their existing company.

*Published with permission in the July, 2015 newseltter*

Married to An Entrepreneur

Dear Dave,
My wife is a very energetic entrepreneur. I’m a little more laid back, so we have very different personality styles. What’s the best way to encourage and communicate with her, and not hold her back from her ambitions? – Charles

Dear Charles,
This is a great question! You’ve already taken the first step in recognizing and identifying your personality styles. If she’s a hard-charging entrepreneur, there’s a good chance God sent you into her life to slow her down enough so she can keep it between the ditches. That’s what my wife does for me. She doesn’t hold me back at all. But sometimes I’ll get to a point where I’m so wrapped up in a project or new opportunity that I can’t turn it loose. That’s when she knows to step in and say, “Honey, did you ever think about this possibility?” or simply, “Dave, slow down!”

The fact that you’re wired a little differently, that you can go slow enough to be observant and wise when things in her professional life are hectic, is one of the most valuable benefits you bring to your relationship. Once she understands and respects this, the more you guys — together — are going to win. It’s going to make a positive impact on your lives, because you’ll be making steady progress that’s more predictable and reasonable versus sudden launches into the stratosphere that are usually followed by crashes.

I love these discussions about family and business. As you grow to better understand the other’s thinking – and how each is necessary for success — a beautiful piece of music will be created. Your encouraging, but cautionary, due diligence side, and her energy and passion to pull things forward, can be the key to you guys making great things happen together!
—Dave

Client is Out of Bounds

Dear Dave,
My wife and I own a small business, and we run it debt-free. We only accept cash or checks in payment. Recently, we’ve had a client start pushing us to accept credit cards. What is your take on this situation? – David

Dear David,
For starters, that client is out of bounds. It’s not his, or her, place to tell you two how to run your business. In a way, you’re kind of lucky to only have one person getting pushy about the whole credit card deal. I have a bunch of people who are mad at me because I won’t accept credit cards. But in my case it’s not just a business decision. I teach people all the time not to use credit cards, so I’d be the world’s biggest hypocrite if I accepted them.

Your case is a little different. Still, if you and your wife have a moral or values issue with accepting credit cards, that’s fine. It’s okay for you not to accept them for payment. You’ll probably have a few people turn up their noses at the idea of not being able to pay with credit, but if you’ve got great products and services, that will only amount to an occasional bump in the road.

But it’s not okay for someone to give you grief over how your business is structured by saying, “You know, you ought to take credit cards so things will be easier for me.” Dude, did you forget how to write a check? I mean, really. It’s not that hard!
—Dave

This is part 2 in a three part series. Part 1 can be read here.

In part 1, we introduced a new in-house parts and warranty program. We talked about how equipment fails based on a normal curve and showed how warranty dollars would be offered to the customer by incorporating the cost into the initial purchase of the equipment or by creating a premium maintenance agreement program.

Part 1 ended by saying the success of the program lies in how the money is handled, which is what we’ll focus on this month.

Step 1: Paper Trail
The beginning of the paper trail (when the income comes from the initial sale of the equipment), starts with setting up a current liabilities account (or an additional one if you already have one). Current liabilities are different from long-term Liabilities; current liabilities indicate the liability will be paid off within a shorter number of years. It is suggested the new current liability accounts be titled Current Liabilities (initial purchase) followed by the year number.

Step 2: Create a Separate Account
Step 2 is to set up a brand new, additional, checking or savings account. This separate account will “hold” all funds until they are dispersed at the end of the year. Placing funds in the separate account will reduce the possibility of spending the money during the year. Out of sight, out of mind!

Steps 3 & 4: Paper Trail
When the money for the installation (which includes the $550 for the 9-year Warranty Agreement) is received, the first step is to deposit the $550 into the new “current liabilities” account. As repairs are performed throughout the year, an invoice should be created as if any other repair performed. However, in this case, the invoice has a note added that states, “No Charge – Covered by Warranty.” Two copies are made, with one going to the homeowner, or business, and the other being filed at the office.

Transfer of Money
When repairs are being performed on warranty work, it is suggested you DO NOT transfer funds at this point. However, if cash flow is really tight, and the funds are needed, it’s ok to transfer the invoice amount from the liability account during the year. However, be sure to keep accurate records so you know which invoice dollars have been transferred and which have not. Be sure NOT to transfer more dollars than are allocated for the current year.

End-of-Year Transfer
If funds have not been transferred during the year, year-end is simple. If they have been transferred during the year it will require a bit more math to do it properly.

Example:
Assuming no dollars have been transferred during the year, there should be $55,000 in the account. That is based on the company selling 100 units that include the $550 per unit for the warranty.

Now calculate the amount that should be transferred from the account. Notice, based on our normal distribution curve, the company should transfer 4% — or $2,200 — from the account into warranty income. If the actual dollars spent (from the collected warranty invoices) exceeds $2,200 for the year, the new program lost money that year. If the $2,200 exceeds the actual billed dollars, the company generated a real profit from the program that year.

The remaining $52,800 ($55,000 – $2,200 = $52,800) in the Currently Liability Account stays there, untaxed, waiting to be utilized over the coming years.

Year Two Transfer (example):
Just like year one, the company calculates what should have been spent that year based on the normal distribution. Year two should have generated repairs totaling 7% or $3,850 ($55,000 x 7% = $3,850). The $3,850 will then be transferred to warranty income. At this point 2013 Current Liability Account should have $48,950 ($55,000 less year one dollars of $2,200 and less year two dollars of $3,850 = $48,950 remaining it in for future repairs.)

How to Handle Year Two Sales
At the beginning of year two, a SECOND currently liabilities account will need to be created. Like the other the account, it needs to be accessible on line for easy transfer of funds.

Note: Each year a “new” Current Liabilities Account will need to be set up. Keep in mind all the dollars will have to be transferred out of each account at the conclusion of the nine-year warranty period. This is why each year must have its own liabilities account with money being kept separate from the other years.

IRS Perspective
What does the IRS think about this process? The IRS is actually more concerned that you have a “logical method” of dispersing funds than they are about what method you use. The worst case scenario is that they disagree with your method and make you change to another. However, the likelihood of that happening is very small.

Before implementing a program like this, be sure to check with your CPA as well as any state regulations that may be applicable within your specific state.

In part 3, we will talk about how to create the Premium Maintenance Agreement program to incorporate the nine year parts and labor warranty program.

Today’s post is by guest blogger Emily Soccorsy from Target Training International. Take the time to understand the new generation who is applying for jobs withyour ocmpany. It’s no longer the same old, same old.

Grads Being Hired Have New Standards for Work

I recently spoke to a group of entrepreneurs about the state of marketing in 2015. One of the forces I always discuss is the dynamic of four generations in the workforce and how more than 40 million Millennials are shaping workplace culture in new ways.

To illustrate some of the points I was making, I cited a recent article in the Wall Street Journal, which described how recent college grads who had made promises to begin working for companies this fall post-graduation were reneging on their promises.

The corporations seemed stymied by this reversal, which was complicated by some of the grads failing to communicate about their switch. Grads this fall are finally facing a rather robust job market.

As the article states, more than half of all 2015 college graduates received job offers after graduating, a rise from 47.9 percent last year, according to the National Association of Colleges and Employers.

Several things stood out to me about this report.

First, the corporations that were interviewed for the article expressed their shock at the grads reneging. Some recruiters discussed penalties for those who back out, while others obliquely mentioned blacklisting grads who had changed their mind. Still, others thought about extending offers earlier — in a misguided attempt to force the grads to stay true.

Many of these strategies seemed to miss the point.

Millennial graduates — even those who are highly driven — think about work very differently than their Gen X or Baby Boomer counterparts.

While an offer to join a more traditional work environment may feel like insurance for them, they still harbor the belief that work should be a match for their passions and an enjoyable way to spend their time.

When they commit, they tend to view their commitment as a trial period — to allow them to determine if the role is a good fit or as experience until something more suited to their passions comes along. Sometimes that trial period expires before it begins.

That doesn’t mean every workplace should cater completely to this perspective alone — again, there are four generations now in the workplace — just that corporate recruiters would be well served to understand the Millennial/Gen Z mindset when it comes to work. Here are three tips.

• • First, in the age of information, transparency is highly valued (since everything can be discovered and will eventually be revealed — and shared — anyway). Therefore, whatever your workplace culture is, own it. Be upfront when hiring about what your culture can offer new hires. While you might not offer a flexible or company-sponsored time for pet projects, you may offer stellar training programs or professional development.

• • Second, consider adjusting recruiting practices to reflect the shifting concepts of work. Instead of working to “lock in” graduates, perhaps extend conditional offers that require both parties to make a mutual final decision just before starting the job. Give new hires the chance to opt-in, instead of feeling obligated or trapped.

• • Third, consider taking an evolved stance on job mobility, as many tech companies have. Expect attrition among your recruits and stay in touch along the way to keep abreast of their job path.

Lastly, and most significantly, invest in attracting new talent who believe what your company believes instead of focusing on the carrots of big signing bonuses or elevated titles.

Most in the Millennial and Gen Z generations are not as enticed by these incentives as in years past. They want to find work that matches their own values — as they see what they do as a reflection ofwho they are.

Make it less about a job for the next 30 years and more about the work you can do together in the next few years.

This is part 2 in a two-part series on the importance of succession planning. Part 1 is available here.

In part 1 of this two-part article series, we started talking about the succession planning process. It appears to be a very simple thing to do but, in reality, building a succession plan is a very complex exercise that requires an immense amount of practice and preparation. We broke it down by defining five major areas and related action steps that must be addressed when forming a succession plan. The first categories we discussed were:  anticipation (the motivation for planning succession) and selection (selecting your successor).

In this article, we’ll dive into the three remaining areas:  Delegation (empowerment and training), Orientation (evaluation of your business’s health) and Transition (leaving well with a leadership legacy).

DELEGATION
Have I practiced delegation by developing other leaders as well as empowering my successor with operational authority? The next step is delegation. Delegation is a discipline and a skill practiced by leader who wants to multiply their efforts and effectiveness through the efforts of other. It is a practice that must proceed your exiting the business and the new leader must be able to be doing eighty percent of your job two years before you leave the company. This insures sufficient time for testing training and team building in preparation for your exit. Delegation is not merely dumping meaningless jobs but rather strategically empowering your successor to cumulatively achieve success in core areas of competencies.

The next action step is empowerment. Empowerment is literally positively promoting your successor to lead at the highest levels of the organization when you are still operationally in command. This is not just a short term experiment. It is both substantive operationally and symbolic positionlly for the new leader and the entire team and work force. Empowerment is your vote of confidence and is the vital training link that allows for a smooth transition both internally and externally for your business success.

• ACTION STEP FIVE:  Practice disciplined delegation. Have I delegated to the next leader?
• ACTION STEP SIX:  Model Strategic Empowerment. Have I modeled empowerment?

ORIENTATION
Do you know clearly the health of your business and the fair market value of your business if you were to sell it? Is your business healthy enough to meet your succession plan time line? Is the business financial model sustainable for your exit and the business future success?

Many small businesses that are successful have succeeded because of herculean efforts of the owner, who is often the owner-operator. Because the business and the owner have an intricate and sometimes complicated arrangement in attempting to appraise the business’s health and viability apart from the present owner may be difficult to quantify. Action step seven requires a reality check regarding your business profitability and your time line projections. Do not overestimate the potential growth of your business with a hypothetical financial projection, but rather a reality check of the past performance of the business. The bottom line question you need to ask is: Is your business healthy and what it is worth if were to be sold on the open market? I recommend an outside objective business appraiser to fix a selling price upon the value. This creates a benchmark for assessing your financial goals.

The next action step is to know your business model and your business cycle. You must have crystal clear understanding of your profitability, your business model, and the products that are you primary profit centers. Businesses, like people, go through seasons of change and expansion and recession. Many businesses have seasonal fluctuations that are predictable. It is crucial that you clearly understand any variables regarding your business profitability, your business model, and any aberrations or anomalies. You must include your successor in all these details as you prepare to exit. It is also critical that your name and your symbolic blessing help your business succeed for your customers and your work force to be retained as you leave for its future success.

• ACTION STEP SEVEN:  Clarify reality. Do you know the health and the worth of your business?
• ACTION STEP EIGHT:  Prepare for sustainability. Do you know your business model, profit centers, and customers for retention preparation?

TRANSITION AND LEGACY
Do you know what your compensation arrangement will be with your successor? Have you decided what your relationship will be with the business operations when you leave?

The next action step, step nine, is to know exactly what the financial arrangement will be as you prepare to leave. As someone once said, “friends are friends until there is money on the table.” The same can be said about family and money as well. How many families have been hurt with inheritance issues? The business must be provided with enough capital to thrive when you leave. The negotiations regarding the compensation package regarding the amount, the timing, the mutually approved vehicle of compensation, and the payout must all be clearly stated and mutually agreed long before you exit the company. The planning process must include the owner who is leaving, the new leaders and the needs of the entire company.

Action step ten is your relationship to the business operations as you exit. It can be difficult to leave, or there may be feelings of intrusion if the former owner does not respect the boundaries of the new leader. It is doubly difficult for a family business. Have you had candid conversations about what is helpful and what may be harmful regarding the former owners’ presence in day-to-day operations? Jack Welch said“companies that lack candor sow the seeds of their own demise.” Is there a mutual understanding between the former leader and the new leader of what your relationship will be with any aspect of the operations in the future? If you are to be involved perhaps as a consultant or coach or even a salesman make sure you and your team know how things are to operate. Remember old patterns are hard to break. Nine out of ten men shave their faces with the same pattern every day. The former owner can become a vital link for future effectiveness or become the elephant in the room for business operational dysfunction.

• ACTION STEP NINE:  Agreement on compensation. What is your compensation agreement?
• ACTION STEP TEN:  Clarify your relationship. What will your relationship be with the new owner and operations are when you leave?

Keep running your race and finish well. The baton is not impossible to pass off if you are prepared and concentrate on both running and most importantly passing off the baton to the next leader when it’s time to go. Hold on strong and remember to let go at just the right time. Also when it’s time to let it go, let it go, let it go, let it go. There is no turning back. As a friend of mine, Gary Kinnaman, said “when your keys fall into a stream of molten lava, let them go!“

*Published with permission in the June, 2015 Newsletter*

Starting Small

Dear Dave,
I have no debt except for my house, and I have eight months of expenses in my emergency fund. I’d like to slowly start an online business while working my regular job, but even though I’m in pretty good financial shape, I don’t have much money left at the end of the month. How can I start my business without borrowing the money? – Kayley

Dear Kayley,
It’s simple. You start and run your business with cash. That should be a guideline for every entrepreneur. You’d be surprised how much cash will pile up over time, even if you save just a little bit each month.

Plus, you may have more money on hand than you think to get your idea started. Right now, you’re a little heavy on your emergency fund. I recommend people have three to six months of expenses set aside for emergencies. You could back your emergency fund down to five or six months of expenses and move the extra over to an account designated to getting your business off the ground. After that, you grow it a little bit each month until you have enough to open your doors.

The big thing, Kayley, is don’t be afraid to start small. Some of the best and most successful companies in this country started as cottage industries or micro-businesses. I started my company on a card table in my living room, and there’s nothing wrong with that kind of beginning. It’s easier and safer in a lot of ways, and it doesn’t take a lot of money. So, I love your wisdom in wanting to start slowly online while keeping your full-time job.

My advice would be to take about two months of expenses out of your emergency fund and move it to a little business account. Then watch your budget and think carefully about your spending. You’re already a person who’s in control of her money, so I think you’ll do a good job growing this business.
Remember: no debt, use cash and grow slowly. There’s no shame in any of these things. The best, most successful businesses don’t outrun their money and other resources!
—Dave

Setting up a Small Business Emergency Fund

Dear Dave,
How do you set up an emergency fund for a small business? -Eric

Dear Eric,
In business, we would name it a little bit differently. Instead of an emergency fund, we’d call it “retained earnings,” but it’s still the same thing. Retained earnings serve several purposes. They could act as an emergency fund, or they could be used to expand the business and launch a new product line. You could also use retained earnings to take advantage of opportunities in the marketplace. This means you could buy out a competitor or buy up additional inventory at a great price.

All businesses have cash needs to stay open and keep moving forward. Your retained earnings could easily be a pretty large account. Of course, you can keep them in a simple business account. That’s not a big deal. But in terms of the amount of retained earnings, I wouldn’t be in panic mode if I didn’t have three to six months of expenses like with an emergency fund in personal finance. That could be a lot of cash, but then you’d be acting as your own credit line too.

That’s how I would do it, Eric. Open an account, call it retained earnings and let that one big chunk of liquidity (that big pile of cash) serve several of your business needs—including the need to stay out of debt!
—Dave