Archives for November 2021

Employee Retention and The Great Resignation

By Dave Ramsey, CEO Ramsey Solutions

Employees everywhere have been looking at their options for a while now. They’ve been weighing the costs of making a career change, seeing if it’s feasible and mustering the courage to quit. It has become such an epidemic that many have begun referring to it by an ominous name: The Great Resignation.

According to some reports, more than 40% of employees are considering quitting their jobs. For many of those folks it’s a seller’s market, where their skills are more in demand than ever before. The flip side? Those shifting gears on their careers comes at a high cost to the businesses they leave. And for those jilted businesses, seeing employees depart has been a wake-up call to prioritize employee retention.

Why Employees Leave

The first thing to understand is that there are two types of employee turnover: voluntary and involuntary. Voluntary turnover is when an employee chooses to leave the company on their own terms. This could look like an employee leaving for a higher-paying job, burnout, a new mother choosing to stay home with her kiddo over returning to work, an employee leaving over differences with leadership, or an employee reaching their time to retire. Involuntary turnover is when the business chooses to end its relationship with the employee.

The problem is that too many companies think their employee retention strategies should only span from hire to fire when they really ought to stretch from hire to retire. By aiming to support the whole person and their whole career, you’re more likely to keep them around longer.

Effects of Poor Employee Retention

Anyone with an ounce of business sense knows their company won’t be as successful as it could if it’s constantly hemorrhaging employees. Not only does turnover cost a lot, it puts an unnecessary strain on the remaining employees.

Turnover is expensive. It can cost 50 to 75% (or six to nine months) of their annual salary to replace someone. Based on median salary data from the Bureau of Labor Statistics, just one median-salaried employee quitting can cost a company more than $38,000. How? Recruitment costs, training their replacement, potential lost revenue, the burden on other employees . . . And obviously if you end up paying severance, that makes it even more expensive.

5 Employee Retention Strategies

Pay Them What They’re WorthYou can’t expect employees to feel great about working at your company if you pay them less than they deserve. If you aren’t competitive with compensation in today’s job market, you’ll put yourself out of business.

Make a Regular Habit of RecognitionEmployees aren’t just units of production. They’re human beings who need to feel appreciated. Lots of times, employees just want genuine appreciation—in private conversation and in front of their peers. There are countless ways to show it without costing the company a ton of money.

Don’t Pass Up Talented Internal Employees for External Hires – If you don’t look at the employees you already have to fill positions of need, you’re doing it wrong. Your employees need to have an opportunity to grow in their careers at your company if they’re going to be there for the long haul. Without a clear path to career growth at your company, they’ll feel like their job is just a step along the way to their ideal landing spot.

Do Whatever It Takes to Build Trust – Employees need to feel like they have the trust of their leaders. When they’ve got leeway to flex their muscles and use their skills and talents, they’ll find more satisfaction in their roles. Clearly trust must be earned, but when you trust your employees—and they trust you—they’re going to invest a lot more of themselves in your company.

Offer Life-Changing Employee Benefits – The days of the status quo employee benefits being enough are over. If you want to be competitive in recruitment and retention, you have to offer life-changing benefits. Consider adding a benefit like financial wellness. Think about benefits like assistance with childcare, an HSA company match, company-paid-for long-term disability insurance or maybe student loan repayment and/or tuition assistance.

Employees leaving at record rates may not last forever, but the reasons for them doing so are sure to become the new normal. Business and benefits leaders must respond by adjusting their strategies to that new normal if they’re going to stand a chance at keeping their talent in house!

* Leadership and small business expert Dave Ramsey is CEO of Ramsey Solutions. He has authored numerous best-selling books, including EntreLeadership.

The Ramsey Show is heard by 18 million listeners each week on more than 600 radio stations and multiple digital platforms.

PART 1 OF 2 | Determine How Your Profit Will Be Spent Ahead of Time

By Tom Grandy, Founder

Nearly all dollars a company spends have been predetermined…except profit.   Labor and materials dollars are predetermined based on the job.  All overhead costs have been directed where to go.  Specific dollars have been pre-allocated for rent, utilities, insurance, etc.  However, profit tends to be the redheaded stepchild.  It sits around until somebody decides to buy an extra tool or perhaps the owner takes a weekend trip with the family.  The profit literally gets fritted away until it’s gone.  That needs to change.  As Dave Ramsey said, “We need to tell every dollar how it will be spent ahead of time.”

This will be a two-part article.  Part I will deal with determining what “real” profit the company has from a cash flow standpoint.  The second article will deal specifically with what percentage of the “real” profit should be allocated for what.  Profit from an accounting standpoint is far different than the “real” profit viewed from a cash flow perspective.  Below is a simplified P/L statement from an accounting perspective.

Obviously, from an accounting standpoint the company generated a $21,500 net profit or 13.5%.  Everything looks great.  The bottom line is that the company will pay taxes based on the “accounting” net profit of $21,500.  However, there is a slight problem.  Additional money flowed out of the company (from a cash flow perspective) that accounting literally ignores.  By the way, it’s not the accountant’s fault, the rules are set by the Internal Revenue Service.  Your accountant is simply following the rules.

Below we will discuss what needs to be considered from a cash flow perspective to come up with the “real” profit.

  • Equipment Replacement Cost – Depreciation is an accounting term and it deals with what the company paid for a piece of equipment and/or vehicle years ago. Equipment replacement costs deal with what it’s going to cost in the future in order to replace that piece of equipment when it wears out.  Let’s assume the vehicle will last the company four (4) more years and it will cost the company $40,000 to replace it four years from today.  That means the company will need to build $10,000/year ($40,000 / 4 years = $10,000) into its overhead in order to be able to pay cash for the new piece of equipment four years from today.  Equipment replacement costs are typically 25% to 50% higher than depreciation.
  • Debt Repayment – Debt can take many forms. It might be repayment of a line of credit, money owed the owner or a family member, or perhaps overdue taxes and penalties.  Any principal payments on these items will NOT show up on the company’s P/L Statement, however the dollars actually did flow out of the company.
  • Loan Principle – Loan payments are made up of principal and interest. The interest shows up on the company’s P/L statement as an overhead expense, but the principle does not.  Again, the principal part of the payment really did flow out of the company but it does not show up on the P/L statement.
  • Hill & Valley Account – This will be a new term for most readers. The Hill & Valley account is literally money held back for those typical 90 slow days most trade companies incur each year.  During those slow times the bills still need to be paid.  The Hill & Valley account basically saves money back to cover those slow times.  There are two ways to fund the Hill & Valley account.

The first is included here where the company literally picks a dollar figure and treats it like any other bill via putting a specific amount of money back into a saving account each month.  We will deal with a second way to fund the Hill & Valley Account next month.

Below you will see what the company’s “real” profit looks like after accounting for the above four items.  These are real costs of doing business and the money literally flowed out of the company but were NOT considered from an accounting/IRS perspective. 

Note:  the accounting P/L statement showed a net profit of $21,500 of which the company will be forced to pay taxes on.  However, from a cash flow perspective the “real” net profit (money left in the checkbook) is only $13,021 or a net profit of 8.2%.

We now know what the company’s “real” net profit is.  The next step is to predetermine how that “real” profit will be allocated each month.  This will be the subject of next month’s article.

Keeping track of dollars is one thing.  Keeping track company policies is quite another.  Every company should have a Company Policy Manual that details everything from vacation policies to drug testing.  Once created, every employee needs to sign off on it.  However, that takes time, right?  Wrong!  This month’s Website Special is our 96-page Company Policy Manual provided in Microsoft Word so the company owner can easily add, change, modify or delete sections in order to customize the manual.  The normal investment is $134 but this month it’s only $97.00.  Order today!

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